The international banking crisis is wreaking havoc in the United States and Europe. But it is outright killing off the poorer nations of the South.
Today’s Financial Times reports on recent research conducted by Goldman Sachs which indicates that about 27% of all so-called “emerging market” countries—i.e., underdeveloped nations—have lost “effective access to debt markets” since the latest trans-Atlantic banking crisis exploded on March 10.
Because of rising U.S. interest rates, and the panicked environment in international finances, such poorer nations now have spreads of more than 9 percentage points over U.S. Treasuries.
This makes any borrowing, or refinancing of maturing debt, impossible. As David Hauner, head of emerging market cross-asset strategy and economics at Bank of America, put it: “No one is going to buy a high-yield bond when you don’t know what is going to happen to the financial market system.”
This situation “will push countries to take tough measures at a time where inflation is already high and they’re already struggling with low growth,” said Sara Grut, an emerging markets sovereign credit strategist at Goldman Sachs. “The key question for these countries is, what will be the thing to help them regain market access? One could be that they do very uncomfortable, unpopular reforms.”
