tag:theconversation.com,2011:/au/topics/economies-in-flux-9512/articlesEconomies in flux – The Conversation2014-03-26T04:08:46Ztag:theconversation.com,2011:article/242602014-03-26T04:08:46Z2014-03-26T04:08:46ZCall centres and compromise: the changing face of outsourcing<figure><img src="https://images.theconversation.com/files/44652/original/b94qrp2n-1395718782.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">India and the Philippines want to be known for more than their global call centres.</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com">Shutterstock.com</a></span></figcaption></figure><p>When Qantas wished to outsource some of its engineering operations in the 1990s it came to a compromise with the unions - the 767s would be done in-house, and the 747s outsourced. </p>
<p>Decades on, clashes between management and unions on outsourcing and offshoring are not confined to the aviation sector, and much less likely to lead to compromise.</p>
<p>Recently, there have been highly publicised cases of back office jobs from Telstra, its subsidiary Sensis (which produces the White Pages), and ANZ being sent to the Philippines.</p>
<p>The Philippines, along with India, is regarded as the capital of the call centre industry with its widespread use of English and strong service culture. </p>
<p>According to Anthony Weymouth, Australia’s senior trade commissioner in Manila: </p>
<blockquote>
<p>There are over 800,000 workers in a number of office blocks clustered in down town Manila, and they are a very important source of consumption for the local economy, along with the remittance payments for overseas based Filipina workers.</p>
</blockquote>
<p>And this has meant a boon for Australian companies involved in food and beverage in central Manila and in building and construction. </p>
<h2>Outsourcing is becoming more nuanced</h2>
<p>Despite Telstra, Macquarie Bank, ANZ and other Australian companies operating some services via the Philippines, not all outsourcing has worked out well. </p>
<p>Many Australian companies found having customer services a long way from customers and not attuned to their needs didn’t deliver a financial gain.</p>
<p>At the same time, Anthony Weymouth points out, the Philippines is moving up the value chain. “The Philippines doesn’t want to be known just for call centres, hence its new investments in mining and shipbuilding as well as professional services.” </p>
<p>The outsourcing industry itself is moving beyond call centres into business procurement, IT and human resources, as well as in health care (post surgery services, virtual nursing and physiotherapy services). </p>
<p>Even the industry association that traditionally represented call centres has changed its name to the Information Technology Business Procurement Association of the Philippines.</p>
<p>A similar story has emerged in India, where businesses looking to bring service staff closer to customers have pulled back some operations from Mumbai and Bangalore. </p>
<p>Like the Philippines, India sees its workforce as highly skilled and takes offence to the notion that call centres are merely for the low skilled. For some years India has tried to get away from the “open cut mining” attitude to higher education with India seen simply as a gold mine for Australian institutions to issue undergraduate degrees to.</p>
<h2>Supply chains in a globalised world</h2>
<p>Australian companies are also basing parts of their operation in Thailand. In the automotive sector (the eastern seaboard is known as “the Detroit of Asia”) many Australian component makers have set up shop be close to their customers. </p>
<p>Manufacturing companies like Trimotive and ANCA wanted to be close to assemblers, and pharmaceutical companies like TUTA Healthcare found they were able to expand employment in Australia by basing part of their operations in Thailand. </p>
<p>These activities have worked for manufacturing in Thailand in the same way that professional services have been the focus of India and the Philippines.</p>
<h2>Policy tests to pass</h2>
<p>So what’s the bottom line of all this outsourcing activity? The test is whether there are more jobs created on average, than are moved overseas. </p>
<p>The advocates would say that if outsourcing some of the work to Asia enables overall growth in employment in the company (and in some cases survival), then it is worth doing. It also ensures that living standards can grow in a number of developing countries. </p>
<p>The detractors say that outsourcing undermines conditions for workers at home and may harm workers abroad if decent labour standards aren’t available. </p>
<p>The outsourcing debate has even divided opinion amongst senior academic economists with heavyweights such as Princeton’s <a href="http://www.princeton.edu/blinder/">Alan Blinder</a> and Columbia’s <a href="http://www.columbia.edu/%7Ejb38/">Jagdish Bhagwati</a> on different sides of the policy divide.</p>
<p>At the end of the day it is a matter for judgement by policy makers. As an open economy, Australia wants to be able to create jobs at a rate that is greater than those that are lost through structural change whilst at the same time ensuring that our neighbours in Asia are able to improve living standards for their workforces. </p>
<p>Having labour market institutions that are inclusive and not extractive (as described in the great Harvard/MIT study <a href="http://economics.mit.edu/files/6699">Why Nations Fail</a>) is an important part of the policy solution. That is, you can’t have free trade without free trade unions, and you can’t forget the delicate balance between wealth creation and wealth distribution in economic development.</p>
<p>Since 1983 Australia has been able to move from a closed economy to an open one, while improving wages and living standards and reducing unemployment. It has done so with strong labour market institutions and social safety nets, which has enabled a good balance between entrepreneurship (the right to have a go) and social justice (the right to the fair go). </p>
<p>If this balance is struck then integration with the Asia Pacific region can occur successfully, and even a subject as sensitive as outsourcing can be handled delicately in the national interest.</p><img src="https://counter.theconversation.com/content/24260/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tim Harcourt has received funding from the Commonwealth Government for international travel related to economic diplomacy. </span></em></p>When Qantas wished to outsource some of its engineering operations in the 1990s it came to a compromise with the unions - the 767s would be done in-house, and the 747s outsourced. Decades on, clashes between…Tim Harcourt, J.W. Nevile Fellow in Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/244062014-03-23T19:28:27Z2014-03-23T19:28:27ZBrazil: the awoken giant stumbles<figure><img src="https://images.theconversation.com/files/44286/original/w952nbmh-1395205013.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Hopes are high for Brazil as it prepares to host the World Cup and hold an election, but real economic change is unlikely to flow.</span> <span class="attribution"><a class="source" href="http://www.flickr.com/photos/bostoncatholic/9345615539/sizes/l/">BostonCatholic/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>This year’s FIFA World Cup and the 2016 Olympics seem to be a coronation of Brazil’s undeniable and startling success. But with the Brazilian presidential elections looming later this year, a surge in street protests and growing economic unrest, will Latin America’s largest nation cope under the international spotlight? </p>
<p>Brazil’s economic and social advancements in the last 20 years are indisputable. Since its last external debt default in 1987 and hyperinflation in 1993, the Latin American giant has successfully implemented a macroeconomic plan (the 1994 Plano Real) that set the country in a new direction: steady poverty reduction and a rising middle class; single-digit annual inflation rates; net external creditor position since 2007; over US$350 billion in foreign reserves; declining bottom-line public debt; investment grade credit rating status; and the list goes on. </p>
<p>The establishment of the macroeconomic stability tripod, namely flexible exchange rates, independent central bank inflation targeting and restrained fiscal balances, <a href="http://www.lowyinstitute.org/publications/great-southern-lands-building-ties-between-australia-and-brazil">delivered success</a> for Brazil in the decade to 2006.</p>
<p>Since then, the reality has become more complicated. Sometimes good news ends up shadowing the system’s weaknesses: high crime rates; weak infrastructure, an oversized, convoluted tax system; poor educational levels; outdated labour laws; numbing red tape; and endemic corruption. </p>
<p>Above all, worse than these ever-present challenges has been the unfortunate change in the nation’s economic direction in 2006. Shortly before the global financial crisis, a political scandal – with a combustive mixture of sex, money and abuse of power – resulted in the ousting of President Lula’s first treasurer Antonio Palocci.</p>
<h2>The Malocci era</h2>
<p>During his term as treasurer between 2003 and 2006, Palocci, a physician-turned-politician-turned-treasurer, closely followed the economic program initiated by his predecessor (and political opponent), Pedro Malan. </p>
<p>In the “Malocci era” a coherent plan of regulatory-driven reform was implemented, paving the way for the economic and social advancements highlighted above. </p>
<p>Despite the thriving economy, the ousting of Palocci forced a change in economic management direction under the current treasurer Guido Mantega. </p>
<p>Mantega and Palocci represented opposing forces inside President Lula’s administration. Whereas Palocci had advocated that well-regulated market forces are the main driver for economic success, Mantega encompasses the belief that central economic fiddling is the best way to manage the economy.</p>
<h2>The king is dead, long live the king!</h2>
<p>Under the leadership of Mantega, economic dirigisme gained prominence and was energised under the government of current President Dilma Roussef (Lula’s hand-picked successor). Accordingly, Brazil has lamentably trailed back to economic micro-(mis)management and cronyism. </p>
<p>Now back on the policy menu: the curbing of Brazil’s central bank independence; energy price freezes; stifling local content requirements for the oil industry; discretionary picking-winner strategies; centralisation of subsidised public credit loans; and import tariff hikes. In addition, no significant structural reforms have been approved since then.</p>
<p>Despite the poor economic management, Brazil’s presidential elections due later this year are expected to confirm the same pool of policies that are undermining the country’s prospects, even though signs of the economy’s distress are imminent. This is another tragic example of short term populist policies that are disastrous in the medium and long run.</p>
<h2>[R]evolution around the corner?</h2>
<p>Since July last year a wave of street upheavals protesting various inequalities have spread throughout Brazil. Unfortunately, the phenomenon is <a href="http://www.lowyinterpreter.org/post/2013/07/03/(R)evolution-in-Brazil.aspx?COLLCC=1271460211&COLLCC=3955656945&/">divided</a> by too many voices and conflicting requests. </p>
<p>Like the 2011 Occupy protests in several Western cities, vague leadership and the lack of clear demands compromise the effectiveness of the protests. Worse: the very same public, which rightly protests against Brazil’s combination of Scandinavian tax burden levels and sub-Saharan public service delivery, does not support a clear agenda of progressive reforms. In the end, neither revolution, nor evolution, is expected to materialise out of the protests.</p>
<p>So, what can we expect from the FIFA World Cup this year and the Olympics in two years? Lots of Carnival-like parties, sparse protest incidents and incredible sport performances. Not much else, regrettably.</p><img src="https://counter.theconversation.com/content/24406/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrick Carvalho does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>This year’s FIFA World Cup and the 2016 Olympics seem to be a coronation of Brazil’s undeniable and startling success. But with the Brazilian presidential elections looming later this year, a surge in…Patrick Carvalho, Associate Lecturer of Economics, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/234742014-03-21T01:06:02Z2014-03-21T01:06:02ZAfrica’s youth can inoculate it from Dutch disease<figure><img src="https://images.theconversation.com/files/43878/original/pvpr32wm-1394751788.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Africa has a youthful population, but so far it has been underutilised in the workforce.</span> <span class="attribution"><span class="source">Charles Okumu</span></span></figcaption></figure><p>Africa is the last frontier of a plundered planet, as argued by Oxford economist and Africa expert <a href="http://global.oup.com/academic/product/the-plundered-planet-9780195395259?cc=au&lang=en&">Paul Collier</a>.</p>
<p>When compared with almost all other regions of the world that have already been explored and had much of their resources extracted, Africa is still virgin and so is now receiving greater attention from all regions, especially China.</p>
<p>And yet the emergence of many multinationals from the West and China in Africa has done little to stem Africa’s large youth unemployment problem.</p>
<p>Some 60% of Africa’s population consists of people aged 15 to 25. This bracket accounts for 45% of Africa’s total labour force and unlike other developing regions, Africa, particularly the Sub Saharan region, is growing continuously more youthful. By 2015 this demographic is <a href="http://www.africaneconomicoutlook.org/en/in-depth/developing-technical-vocational-skills-in-africa/tvsd-in-specific-contexts/youth-unemployment/">projected</a> to be at over 75%. </p>
<p>Of critical importance is whether and how this vibrant, energetic and secure source of labour, critical to the strategic economic development of Africa, is currently being tapped. Sadly, the level of economic engagement of African youth is pitiful, leaving many young people dejected and severely underutilised.</p>
<p>Whether the extensive presence of multinationals in Africa generates enough employment for Africans is a debate worth exploring. Youth unemployment in most of African countries, particularly in <a href="http://www.africaneconomicoutlook.org/en/in-depth/developing-technical-vocational-skills-in-africa/tvsd-in-specific-contexts/youth-unemployment/">Sub Saharan Africa stands at around 20%</a>. This percentage grows exponentially when one delves into the nation-to-nation projections of unemployment. Worse still, the situation gets depressing when the poor outlook of rural unemployment is considered.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/lEUYNuD4djI?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>The multinationals undertaking many major projects in Africa at the moment could do more to absorb local African labour.</p>
<h2>Matching skills with work</h2>
<p>Various theories have been put forward as to why multinational corporations investing in Africa do very little to employ local Africans. Over 50% of African youth are illiterate and have limited skills required for the emerging business economy. Those with some form of education more often possess irrelevant skills to those demanded in the current labour market. </p>
<p>The young require vocational training to update and acquire new sets of skill to be able to adapt and re-adapt to the ever flexible and constantly changing labour market. Additionally a key focus should target basic knowledge, literacy and lifelong learning skills. Vocational training should be aimed at improving specific skills related to new technologies combined with on-the-job training.</p>
<p>Even when they find employment, young workers are the most vulnerable to layoffs when economic growth falters. This is compounded by the limited attention to job creation by African governments, the youth obsession with unrealistic wage expectations, and negative employer attitudes towards inexperienced young people. Finally there are the pervasive and compounding labour market disadvantages of poverty.</p>
<h2>Cracking corruption</h2>
<p>The misplaced priorities of the leaderships of many of the governments of Africa, and of the political elites, undermine any sustained effort towards the remedy of youth unemployment. Widespread corruption is concealed by hubris.</p>
<p>For example, in 2009, Transparency International filed a lawsuit accusing Presidents Omar Bongo of Gabon, Denis Sassou Nguesso of the Republic of Congo and Teodoro Obiang Nguema Mbasogo of the Equatorial Guinea of buying luxury homes with state funds. It was alleged that Nguesso owned 24 estates and was running 112 bank accounts in France. Bongo and his relatives allegedly owned over 30 luxurious estates on the French Riviera and in Paris.</p>
<p>This untrammelled level of greed for personal and private wealth accumulation robs African economies of the impetus to germinate and nurture widespread economic activity.</p>
<p>Finally, in relation to African management of Africa resources and the systematic alienation of Africans from it benefits, Kofi Annan in the <a>African Progress Report 2013</a>, on behalf of the executive team, insisted:</p>
<blockquote>
<p>Success will require leadership, transparency, and accountability, too. There is no substitute for public scrutiny in developing effective and equitable policies. African governments must rise to the challenges posed by fiscal policy, tax reform and the development of industrial policies. They must manage their countries’ oil, gas and mining resources efficiently and share revenues fairly. We therefore call on African governments to set out a bold national agenda for strengthening transparency and accountability to their citizens. For too long, African governments have been responding to externally driven transparency agendas. They have been following, not leading. And it is time to change this pattern.</p>
</blockquote>
<p>In the end, it is Africans’ responsibility to manage and address challenges that come with its increasing youthful population. Educate and equip the young with necessary skills required in the current labour market, but most importantly, government leaders and African elites should strive to not only abandon their corrupt ways but also enforce systems that uphold transparency and accountability across the board.</p>
<h2>Avoiding Dutch disease</h2>
<p>There is in sight an escape for Africa from the tragedy of mass youth unemployment. With its rich natural resources and promising level of economic growth Africa can engage in structural transformation.</p>
<p>Building a framework of education and infrastructure, optimising the revenues from natural resources, and investing them strategically, enhancing agricultural production and promoting economic <a href="http://www.africaneconomicoutlook.org/en/in-depth/structural-transformation-and-natural-resources/">linkages between the resources sector and the economy</a> as a whole.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/43881/original/vh825kjx-1394753331.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/43881/original/vh825kjx-1394753331.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=262&fit=crop&dpr=1 600w, https://images.theconversation.com/files/43881/original/vh825kjx-1394753331.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=262&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/43881/original/vh825kjx-1394753331.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=262&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/43881/original/vh825kjx-1394753331.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=329&fit=crop&dpr=1 754w, https://images.theconversation.com/files/43881/original/vh825kjx-1394753331.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=329&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/43881/original/vh825kjx-1394753331.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=329&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The ideal path from resource discovery to abundance without dependence.</span>
<span class="attribution"><a class="source" href="http://www.africaneconomicoutlook.org/en/in-depth/structural-transformation-and-natural-resources/building-on-a-strong-primary-sector-as-the-basis-for-structural-transformation/">African Economic Outlook</a></span>
</figcaption>
</figure>
<p>As the graph illustrates there need be no inevitability of the Dutch disease as resources wealth wipes out all other forms of economic activity. Used intelligently resources development can encourage other forms of high technology use. Revenues generated from resources can be extensively invested in human capital development, creating further opportunities for business diversification. Over time resources can become less important as a capability economy takes over. </p>
<p>This leap from a resources economy to a capability based economy (which strangely enough Australia is also attempting presently) requires imagination and determination. The tendency to squander the apparently easy profits from resources businesses on consumption must be resisted. These funds need to be invested in the skills and businesses that will provide a future. </p>
<p>African youth, fascinated by the digital world, needs access to it in the form of affordable equipment and broadband access if they are to progress. </p>
<p>There is a future for Africa, and this can be released if the energy, intelligence and idealism of its young people can be given a chance.</p><img src="https://counter.theconversation.com/content/23474/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Africa is the last frontier of a plundered planet, as argued by Oxford economist and Africa expert Paul Collier. When compared with almost all other regions of the world that have already been explored…Charles Okumu, PhD Candidate, University of Technology SydneyThomas Clarke, Professor, Centre for Corporate Governance , University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/236132014-03-19T19:35:10Z2014-03-19T19:35:10ZExplainer: why do emerging markets have so many crises?<figure><img src="https://images.theconversation.com/files/43238/original/rj37cp2d-1394066206.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Emerging economies: still basket cases?</span> <span class="attribution"><a class="source" href="http://www.flickr.com/photos/30685721@N02/3511082642/sizes/l/">Wander/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>In past decades, emerging markets were traditionally thought of as “basket case” economies, with the associated stigma.</p>
<p>Perceptions have improved in recent years, but there are still concerns these economies may once again fall down the slippery crisis-ridden path, driven by tapering in quantitative easing that has begun in the US, and political unrest.</p>
<p>Why is it that some news, like the devaluation of a currency or announcement of fiscal problems, trigger a rapid adverse contagious chain reaction among emerging economies?</p>
<p>The sell-off of the Thai baht on July 2, 1997 for example, triggered financial turmoil right across East Asia with countries like Indonesia, Korea, Malaysia, and the Philippines being the hardest hit. </p>
<p>Similarly, when Russia defaulted on its sovereign bonds on August 18, 1998, the effects were felt internationally in other markets like Hong Kong, Brazil, Mexico and many other emerging markets. </p>
<p>The ensuing cascade of economic effects from these shocks typically include major declines in share prices, free-falls in the value of the currency (and/or escalating price levels), hikes in the cost of borrowing, severely reduced access to international capital, rising unemployment and a decline in capital investments, output and economic growth. It takes many years for affected emerging economies to bounce back from these economically and socially disruptive episodes.</p>
<p><a href="http://www.aeaweb.org/articles.php?doi=10.1257/089533003772034899">Research</a> has highlighted three main reasons emerging markets are prone to experiencing fast and furious declines when there is an adverse economic shock. These crisis periods are typically characterised by “the unholy trinity”: (i) they follow a large surge in capital flows; (ii) the shock comes as a surprise to market participants; and (iii) they involve leveraged common creditors forced to withdraw from multiple countries at once.</p>
<p>Emerging markets are prone to “hot money flows”. In stable times, international investors will chase higher yields in emerging market economies. But with better returns comes more risk, so the same investors and creditors are highly sensitive and tend to panic and flee emerging markets in droves when things get shaky unexpectedly. </p>
<p>Crises in emerging markets can also be escalated by self-fulfilling expectations - if the market <em>thinks</em> en masse that there will be a crisis (and act on it) then there likely will be a crisis.</p>
<h2>Untangling all the crises – currency, banking and debt</h2>
<p>Currency crises (or balance of payment crises) were the main focus in earlier studies on emerging markets. But more recent studies have accounted for other types of crises that manifest in the banking system and from government debt. In all forms, financial crises are very costly for affected countries and unambiguously work to reduce economic growth. </p>
<p>Currency crises severely affect trade flows. Banking crises hamper credit supply and reduce output and investments. Debt crises drastically increase the cost of borrowing for national governments, and subsequent austerity measures to combat sovereign debt crises can be painful.</p>
<p>The underlying causes of these different types of crises do however share some commonalities and typically arise from firstly a long-running reliance on external financing that has been used to feed a domestic credit boom and an asset price bubble, followed by the eventual burst of the bubble and a rampant loss of investor confidence. </p>
<p>History tells us that crises rarely occur where economies are sound. The usual recipe for cooking up a crisis involves an economic downturn that comes after a prolonged economic boom that has been fuelled by cheap credit with an associated over-valued currency that can quickly deplete foreign reserves to defend when the tide turns. Turkey, Mexico and Argentina are all notable examples. </p>
<p>In recent years, more light has been shed on the sequencing of these financial crises. <a href="https://www.aeaweb.org/articles.php?doi=10.1257/aer.101.5.1676%20and%20https://www.aeaweb.org/articles.php?doi=10.1257/aer.89.3.473">Research</a> has documented that banking crises often precede or accompany debt and/or currency crises and a vicious cycle evolves as the latter crises can further deepen problems in the banking sector. Consistent with this, separate <a href="http://rfs.oxfordjournals.org/content/26/6/1526">research</a> has highlighted that governments (especially those in more politically unstable countries) can be short-sighted – they have a tendency to create repressed financial systems within which largely state or government owned domestic banks provide a ready financing channel for government expenditures. </p>
<p>As a result, the fates of banks and governments become intricately linked and there is a strong bilateral relationship between banking crises and sovereign debt crises. As a result governments easily over-borrow and are reluctant to reduce fiscal deficits even with unsustainably large debts on their balance sheets. The sovereign-banking nexus can create a dangerous amplification effect and the link needs to be weakened in the future.</p>
<h2>Weaning off banks</h2>
<p>A domestic banking crisis can adversely affect the fiscal strength of an emerging market and the ensuing sovereign credit deterioration can cause collateral damage to the banking system, making any future issuance of debt more difficult for all sectors of the economy.</p>
<p>In light of these issues, international policymakers need to work with governments in emerging economies to develop alternative channels for raising debt capital. Capital from non-bank financial institutions and retail investors would enhance risk sharing in these less developed financial systems. </p>
<p>Current banking regulations encouraging banks to hold government bonds should also be revisited to weaken the reliance of governments on bank financing. Emerging market crises are a global problem in an increasingly globalised world and coordinated efforts are required to ward off future crises.</p><img src="https://counter.theconversation.com/content/23613/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eliza Wu receives funding from the Centre for International Finance and Regulation (CIFR).</span></em></p>In past decades, emerging markets were traditionally thought of as “basket case” economies, with the associated stigma. Perceptions have improved in recent years, but there are still concerns these economies…Eliza Wu, Associate Professor in Finance, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.