Emerging Market Economies

Emerging market relies heavily on foreign debts to build infrastructures:

1)    Lack of middle class for structural reforms

2)    Depends on commodities and undiversified

3)    Has responsible fiscal and monetary policies? (deficit<4% of GDP)

4)    Expected growth > 4% to compensate for the risk

5)    Reasonable current account deficit? (<4% of GDP)

6)    Debt < 50% of GDP or 200% of current account recipes

7)    Enough foreign reserve?

8)    Government’s supportive to structural reform?

Economies links:

Microeconomic link

Exchange rate link

Interest rate differential: Real interest rate differential must be zero, over long run should be equalized by exchange rate. So, with higher interest rate will see the currency appreciates.