Upcoming polls to distract govts from battling crisis: report

Written by Sanjay Jog | Mumbai | Updated: Mar 4 2009, 05:26am hrs
The upcoming elections in India, Indonesia, Turkey and Ukraine could distract the governments from management of economic crisis. This will particularly effect the countries where there are competitive election environments or weak coalitions. Russia and Venezuela which have relied on the policies of resource nationalism and fiscal freedom provided by high commodity prices, will have difficulty pushing through policies that will help mitigate the impact of the current financial crisis and impending slowdown.

According to PricewaterhouseCoopers and Eurasia Group research paper titled Global Trends Quarterly, the economic downturn in emerging markets is causing an increase in protectionism and economic nationalism. Countries including Russia, India, Indonesia and Brazil have already announced their intentions to raise import tariffs or restrict trade. US legislators have favoured Buy American clause. Governments will favour local industry, creating an uneven playing field for foreign competitors and raising the risk of trade tension.

However, the steep declines in equity markets around the world provide a potential opportunity for mergers and acquisitions, as many companies are currently undervalued. Wal Marts December bid for Chiles Distribution & Servicio grocery store chain is one example. Conversely, companies from emerging markets have a chance to grow when incubent players stumble. Distress in the US automotive industry could open the door for Chinese or Indian firms to acquire weakened competitors or create a new low cost competitor in the US.

Besides, some emerging markets, particularly those that have gone to the International Monetary Fund for assistance (Hungary and Ukraine) will be under external pressure to make structural, political, financial and regulatory reforms that could increase their attractiveness in the long run.

As the credit crisis unfolded, there was initially some hope that the dynamism of emerging markets would carry them through turmoil, or that decoupling would somehow insulate them from external shocks. With incredible speed, the financial crisis in the second half of 2008 hit emerging markets as well, radically changing their economic prospects. While the longer term outlook for emerging markets remains positive, the near term forecast of these markets looks challenging. the report said.