Financial crisis in developing countries 'inevitable'

Financial crisis in developing countries 'inevitable'

Li Daokui told a forum that emerging economies such as Brazil and India face fiscal and current account deficits and a crisis was “inevitable”, Caijing Magazine reported on its website

“China will play an very important role during the financial consolidation. But there will be no such crisis in China because it is quite different from most other developing and developed countries,” he said. The US dollar, euro and yen are expected to face downward pressure over the medium and long term, he added.

In February, the Indian government raised “serious concern” about a trade deficit that could more than double to $278.5 billion in three years and may cause an unquestionable current account deficit.

Brazil’s current account deficit ballooned to a record for the month of March as foreign companies in Brazil sent more profits home and Brazilians spent more on travel and goods overseas.

Fiscal balances

In January, the International Monetary Fund warned fiscal balances in Brazil, China and India were weaker than the IMF earlier projected, noting a deterioration in Brazil’s fiscal accounts was “particularly pronounced”. The Brazilian government ramped up spending ahead of October elections last year in what some analysts called a bid to boost ruling party presidential candidate Dilma Rousseff.

Rousseff's administration has since announced budget cuts, a move which Moody’s Investors Service said was a positive signal but the country still need to do more to earn an upgrade on its sovereign debt rating. Brazil’s debt-to-Gross Domestic Product ratio held steady at 39.9 per cent in March.