Which big developing country economies are most likely to crash?

March 3, 2009

     By Duncan Green     

This week’s Economist has a go at identifying the dominos before they fall. It says ‘The drought of foreign capital is beginning to wreck many economies in central and eastern Europe. Currencies, shares and bonds are tumbling, and some economists fear that one or more of these countries could default on its foreign debts. Emerging-market crises have a nasty habit of spreading as investors flee one country after another. Some Middle Eastern markets, notably Dubai, are already in trouble. But which of the larger emerging economies are most vulnerable?’ It then looks at three measures of vulnerability: the country’s current account deficit; its level of short term debt; and the level of exposure of its banks, and comes up with the league table below.

Points to note: the East Asians emerge as the least vulnerable, with the exception of South Korea, which especially since its crash in 1998, has come over all Latin American in its love of deregulation and liberalization, leaving it much more exposed to further crises. South Africa is the most vulnerable, followed by an eclectic mix of East Europeans, Asians and Latin Americans. Note that this is only the larger economies – smaller, poorer¬†economies may be more vulnerable, but don’t appear on the Economist’s radar.