Emerging Markets -- The threat of a full-fledged currency, sovereign debt and banking crisis remains low

Nonetheless, the threat of a full-fledged currency, sovereign debt and banking crisis remains low, even in the Fragile Five, for several reasons. All have flexible exchange rates, a large war chest of reserves to shield against a run on their currencies and banks, and fewer currency mismatches. Many also have sounder banking systems, while their public and private debt ratios, though rising, are still low, with little risk of insolvency.
Over time, optimism about emerging markets is probably correct. Many have sound macroeconomic, financial and policy fundamentals. Moreover, some of the medium-term fundamentals for most emerging markets, including the fragile ones, remain strong: urbanization, industrialization, catch-up growth from low?per capita income, a demographic dividend, the emergence of a more stable middle class, the rise of a consumer society and the opportunities for faster output gains once structural reforms are implemented. So it is not fair to lump all emerging markets into one basket; differentiation is needed.
But the short-run policy trade-offs that many of these countries face - damned if they tighten monetary and fiscal policy fast enough, and damned if they do not - remain ugly. The external risks and internal macroeconomic and structural vulnerabilities that they face will continue to cloud their immediate outlook. The next year or two will be a bumpy ride for many emerging markets, before more stable and market-oriented governments implement sounder policies. - in Project Syndicate 2014.


Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics