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FallingCurrencies Lead to Fear of ContagionFear is growing in financial markets aroundthe world. First, it was Argentina. Then came Turkey, South Africa andIndonesia.
Investors and policy-making officials are worried about the falling value of currencies of several emerging markets. Most of these developing countries have borrowed a lot of money, oftenin United States dollars. As the value of their national currency falls against the dollar, the amount they have to repay grows larger. This has caused fears of a repeat of the 1997 Asian financial crisis or of Mexico's financial crisis in 1994.
Why? One word: contagion.
Contagion means that economic concerns move from one country toanother, bringing down currency values and stock markets. Contagion could affect every country in the world. The value of Argentina's money, the peso,fell 29 percent against the U.S. dollar in August. Next, Turkey's currency lost 25 percent of its value. South Africa's rand had an almost 10 percent drop. The Indonesian rupiah fell to its lowest level since 1997. India's currency alsofell.
Now September has arrived, and those currencies are still down.The Turkish lira is now down 40 percent against the dollar. Turkey's privatebanks and businesses have large debts in dollars and there is concern they might not have the money to repay those debts. Foreign exchange markets are nervous. Traders are worried morecountries may be added to the list. They are looking at African nations like Angola, Ghana, Ethiopia and Mozambique.
Another example is Iran. The Iranian currency has fallen morethan 140 percent since the United States withdrew from the 2015 nuclear dealfour months ago. Oil companies and other industries have been forced to leaveIran and the economy is in trouble.
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Even some of the world's more developed economies may be affected. Financial experts are closely watching Chile, Polandand Hungary. They say those three countries have foreign currency debts above50 percent of Gross Domestic Product (GDP).
Private, non-government, debt in emerging and developing countries is larger than it was during the 2008 financial crisis.The bigger thedebt, the harder the fall. "The risk is increasing in those countries," warns Bertrand Delgado, director of international markets forSociete Generale in New York.
Among investors and policy makers, there is agreement about why emerging marketsare in trouble. They largely blame three developments:
1. – Investors are worried about U.S. President Donald Trump'strade war with China and other countries. 2. - Rising U.S. interest rates have made investors pull their money from emerging markets and put it into dollar investments. 3. – After the 2008 financial crisis, the U.S. Federal Reserveand the European Central Bank increased the supply of money to help with the economic recovery. Now they have begun to tighten the money supply. There is less money to borrow, and it costs more to borrow it.
A financial crash?
Marcus Ashworth of Bloomberg said last week that theemerging-markets situation looks like contagion. "The difficulties for emerging markets have entered anew phase," he said, adding that contagion is moving to other countries.
Other market watchers are less worried. They believe each country with falling currencies have their own problems that are causing thesituation. But they agree that another interest rate rise by the U.S. FederalReserve could change everything.
Recently, the Singapore-based financial services group DBS senta note to investors. It warned that Argentina and Turkey are struggling to paytheir loans back in dollars. It added that "trade tensions" couldcause financial "instability" in thesecountries.
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Britain's The Economist saysthe weakness in emerging-market currencies does not have to be contagious. Itcould be contained, and does not have to threaten the solvency oflarge Western Banks.
Others agree. They point to the many strong emerging-market economies. At the end of June, India's GDP was growing at an 8 percent rate. Mexico's peso is calm. Mexico seems to have ended its trade talks withthe Trump White House agreeably. That makes investors happy.
Some experts say the fear of contagion comes from theinternational media and is not real. They point out that when the FederalReserve first raised rates in 2013, currency values in most of these countriesfell. Then they recovered.
The great unknown in understanding contagion is investor emotion. Investors could panic and pull out all theirmoney from these countries. If that happened too suddenly, contagion would bevery possible. I'm Susan Shand.
S.Korea Says Korean Leaders to Meet on DenuclearizationA South Korean official says North Korea'sleader commented that he is committed to denuclearization of the KoreanPeninsula.
National security advisor Chung Eui-yong also said that theleaders of North and South Korea are to meet in the capital of North Korea,Pyongyang, from September 18th to the 20th. Chung made the announcementThursday in Seoul.
One day earlier, Chung led a delegation to the North Koreancapital to confirm details of the planned meeting. He also met with NorthKorean leader Kim Jong Un. 计时4 (253 words)
Kimsaid to be frustrated Thursday, Chung told reporters about his talks with Kim. He saidKim confirmed his commitment to the complete denuclearization of the Korean Peninsula. The official added that Kim also promised to cooperate with bothSouth Korea and the United States.
Chung said that Kim's faith in U.S. President Donald Trump isunchanged since their summit in Singapore on June 12. News of the comment brought a statement of thanks from Trump onTwitter.
Chung noted that Kim said he wishes for North Korea and the U.S.to end their hostilities by the end of Trump's first term in office in 2021. The Associated Press reports that Chung said Kim expressed frustration overthe international community's reaction to measures taken by the North.
Several measures were meant to show the North's willingness toend its banned weapons programs. These include disabling part of the Sohaemissile launch area and destruction of tunnels used to test nuclear weapons.Last month, North Korea also returned 55 sets of human remains to the United States. They are believed to be those of American soldiers who died in theKorean War.
Kim said he would take "more active" measures toward denuclearization if his moves were met with similar measures, Chung said. The South Korean delegation came to Pyongyang as U.S.-North Korean diplomatic efforts appeared to have cooled. Last month, Trump cancelleda planned trip by U.S. Secretary of State Mike Pompeo to Pyongyang. He said notenough progress had been made toward denuclearization.
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Critics of the most recent negotiationefforts say North Korea has, in the past, said it would end its nuclearprogram. They say the North has often sought to gain economic aid and thenfailed to keep its promises. China'spart in negotiations The most recent developments come as North Korea prepares tomark its 70th anniversary on September 9. Representatives ofNorth Korea's close ally, China, are expected to be at the special ceremony.
Chinese parliamentary chief Li Zhanshu is set to attend, not President Xi Jinping. Li is the third ranking member in China's CommunistParty. Stephen Noerper is a senior director at the Korea Society in NewYork City.
He said, while China has listened to North Korea's concerns, thecountry has reduced trade with its neighbor and placed pressure on it. NorthKorea continues to face strong United Nations restrictions because of itsbanned nuclear and missile program.
President Trump has called on China to do more to get North Korea to take part in talks on denuclearization. Noerper said South Korea is acting as a moderator between theU.S. and the North. He said this position is risky for South Korean PresidentMoon Jae-in. Moon's popularity at home has fallen since his earlier meetingswith Kim and the Trump-Kim summit.
Moon spoke to his aides Thursday about the next meeting withKim. He said the talks will speed up negotiations between the U.S. and NorthKorea on the issue of denuclearization.
The newly announced summit between the Korean leaders would comejust before the yearly gathering of world leaders at the United Nations in NewYork. I'm Mario Ritter.
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