In the new year, a new label for countries that pass the test.
My pick for word of the year 2013 is: “taper”. This modest word — better than the conceited “selfie” or the annoying “twerk” — did more to bring us together as a global community than any other. The beauty of the taper is that, like Godot, it didn’t actually have to make an appearance to make a difference. In fact, it is now, in 2014, that the US central bank will actually begin the tapering, a winding down of the biggest monetary experiment in history. The experiment may have started as a way to juice-up the American economy with increased money supply, but it had an even more dramatic impact on economies elsewhere. Fuelled by speculators awash with cash and chasing quick returns, “hot” money had flooded emerging markets in past years. The year 2013 was when this flow abruptly reversed direction, in anticipation of the experiment’s end.
Even without the impending taper’s destabilising spell, conditions were ripe to make 2013 a year of tumult for emerging markets. The taper threat served to put three essential truths about these markets into focus.
To begin with, context matters. In much of the emerging world, the “emergence” of the past few years has been concentrated in selective sections of the populations. Moreover, all the dramatic positive developments had primarily been in aggregate GDP growth statistics. A quick scan of the World Bank’s ease of doing business rankings, for example, offers a measure of how far the most celebrated of emerging countries are from being truly complete societies. China, the world’s second largest economy, leads the BRICS pack and is ranked 91st in the world, while India, the world’s third largest economy in purchasing-power-parity, brings up the BRICS rear at 132nd. The contexts surrounding the economic oases — comprising political, legal and other governance systems, the state of human development, of the capital markets, of the environment or of the infrastructure — have barely kept pace. Corruption scandals, factory collapses and fires, and sluggish reform agendas dominated the headlines the past year. This two-speed emergence has created an unsustainable imbalance. The year 2013 was distinctive in a marked slowdown across much of the emerging world and revealed a fundamental axiom: bad context will eventually trump the best business opportunities.
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Second, the last decade’s marketing labels don’t matter. Speaking of the BRICS, it is time to stop speaking of it. The packaging geniuses at the investment banks stopped peddling BRICS or CIVETS in 2013 and used the taper talk to tape together a new package, the “fragile five”: Brazil, India, Indonesia, Turkey and South Africa, or BIITS, if you insist. They were among the most tormented by the taper, for starters. Over the May-September period in 2013, their stock markets and currencies were convulsed after the US Federal Reserve announced that it was considering tapering its asset-purchase programme. Cheap financing had enabled these economies to live beyond their means. They had borrowed from abroad at low interest rates and imported more than they exported, without real structural reform. In 2013, the chickens came home to roost: with inflation running at 6-8 per cent, currency devaluations at 7.6-15.4 per cent against the US dollar and current account deficits between 3.2-6.6 per cent, this was not the club to belong to. These are, however, the countries with the greatest potential to set the tone for broad-based growth coming out of emerging markets in 2014.
Third, the man on the street matters. From Cairo to Kiev, anger with the ruling establishments boiled over into the streets and public squares. In Indonesia, workers went on strike against poor working conditions and low wages, while Brazilians protested against rising bus fares. South Africa’s Jacob Zuma was roundly booed, even in the middle of an event as non-partisan as Nelson Mandela’s funeral. In the midst of whether it would be Narendra Modi or Sonia Gandhi steering India beyond this year, the man-on-the-street seemed to come out of nowhere in the guise of Arvind Kejriwal to take the reins in Delhi. In the meantime, all of these countries are experiencing growing demands from a wider swathe of the population to be included in the increasingly visible mass consumption economy. With more urbanisation, the poor are packed cheek-by-jowl into the same small spaces as the newly rich. And if that were not enough to fuel cries for reform, thanks to the internet, mobile phones and Twitter, the growing inequities are no longer a secret.
All of this is good news since 2014 promises to be a remarkable year for the man on the street to put this knowledge to use and make his voice heard. Whether your label of choice is BRICS or CIVETS or BIITS, with the exception of populations that essentially have no choice in their governments, every country in this acronym soup is readying for major elections. In some cases, notably in Egypt, it is unlikely that there will be a stable endgame this year. In other cases, such as in Brazil, the incumbent will likely be back in power. The jury may be out on the others. India may well take the prize for the most closely watched elections this year. Turkey may take the prize as the biggest wildcard. All in all, this new year will be a big one for the little man.
So as we embrace the new year, let us take a moment to celebrate the taper that never arrived. Its eventual arrival early in 2014 will give us the means to put the Warren Buffett maxim to good use: only when the tide goes out do you discover who has been swimming naked. For the countries that pass the test, surely, they deserve a catchy marketing label for use by the investment banks that will be tasked to talk them up. Perhaps we can call them the Taper Tigers.
The writer is senior associate dean of international business and finance at The Fletcher School, Tufts University and founding executive director of Fletcher’s Institute for Business in the Global Context.