BTW the solution for the hot money problem for the emerging markets is very simple and straight forward. You need to develop a large and stable middle class. This gives you a broader base of wealth with a large savings pool that can be used to finance growth internally, much the way a retail deposit base works for banks. The problem in many of the emerging markets is that the middle class is only beginning to develop so the wealth is concentrated to a far greater degree among the wealthy. These large concentrations of wealth tend to act more like hot money as it will move much more quickly. The problem of course is in developing a large stable middle class.
Yes, yes.... unfortunately, it is easier said than done.
The middle class in the developing country is growing (primarily by the sheer birth rate and somehow fair economic growth).
The problem is the corruption of the people in government, which in many instances it is so engrained in the general population that it becomes a way of life... so to become "efficient" in such environment (and being honest) is a near impossibility.
By the existence of these highly inefficient environment, the task and potential effect of foreign investment becomes that much more difficult as many of the managers (foreign, in many instances, but likewise the good local guys) become frustrated, (even exasperated), because it is so difficult to work under such conditions.
An example that could really represent most any other third world country: Mexico.
This country is particularly meaningful to the US because of two geographical reasons:
One. it is the southern neighbor of the US,
Second. because the success or failure of this country will greatly influence the rest of Latin America.
Whether people like it or not, the well being of this country is key to the well being of the US itself, for many reasons, amongst many, the problem of illegal immigration easily comes to mind.
The local "hot money" indeed is faster, because they get inside info way ahead of the event. What infuriated many powerful people in Mexico in the last devaluation of Dec. 1994, was that very few, expected it, or knew its timing. This IMO created a bigger problem, because many people that in the past were able to at least keep their "purchasing power" and re-invest in the local economy and re-invigorate employment etc. were unable to do this and truly lost a ton of money.
The situation has and is becoming increasingly worse, where now crime is beginning to become a big hindrance to the point that personal safety is no longer "guaranteed".
In the background of all this, you have population growth of better than 2.5% (while lower than 10 or 20 years ago, they have larger bases now), primarily amongst the poorer classes.
The big culprit of this rampant growth in the population, (again in the economic levels where ignorance and lack of skill is prevalent), is the Catholic Church given their "family planning" policies (rather lack of policies).... However, I will not get into that as I am sure you have noticed what great "fan" I am of the Priesthood Operetta.
More than the growth of the middle class, it is the lack of open opportunity to the brightest and greatest to develop their knowledge, skill and eventual growth. This environment will then yield as a result, the middle class you allude.
Lately, the opposition against the RIP (actually the PRI, "RIP" is the folks-name for the same, which is the party in power since the days of the revolution in 1910-21), has become more successful, unfortunately, the opposition is divided into two camps, the extreme right (PAN) and then the sundry flavored communists (PDR).
Again, these guys are so focused that their particular agenda beats the PRI that the large picture of things is completely lost (if it ever was in focus).
I repeat as these squabbles take place, the entire country is sinking by its own weight of rampant population growth, corruption in government and its interaction with private enterprise, decaying infrastructures that simply have no chance of catching up with the rapid growth of its population, deficient educational systems that are not producing the necessary skill level of education in the population to empower them in order generate the wealth that it is needed to avoid these periodic devaluations, and its corresponding runs of hot moneys, local and foreign....
Any suggestions I am sure will be appreciated by many, the problem is will they ever be capable to implement them ?
The above to a different degrees, will be applicable in the rest of Latin America.
Perhaps the one exception is Argentina, which may be in a slightly better position overall, including its smaller population (33'500,000 people)....
In closing and to be sure, I advocate free markets, not social welfare, however, it is a near impossibility to allow free markets operate in environments are rampant with corrupted officials and minds that make such corruption a "way of life", in other words, content with such....
I now will step down from my soapbox, and be quiet. Thank you for listening ....
Must go and be corrupt now.... just kidding. |
