Whatever It Takes, Wherever

Covid has prompted everyone, everywhere, to react. Each is reaching from the same playbook, or plasti-card guidelines, to navigate this unfolding crisis. And, in this inter-connected world, each presumes the same capacity.

In general, the monetary authorities in many emerging markets have responded to the Covid-19 crisis much as those in the OECD have done. They are dousing the situation in liquidity to keep their economies from becoming stuck and failing. The Financial Times, in its March 30th edition, provides a helpful roll call. See the article, “Emerging Market Central Banks Embark on Radical Stimulus Policies” – FT, 3/30/20.

The FT reports that the central banks in diverse emerging markets such as Poland, Colombia, the Philippines and South Africa have all begun buying government and private sector bonds in the secondary markets. According to the FT, the central banks in Brazil and the Czech Republic have petitioned their legislatures to enact enabling laws that would allow them to do the same.

Of particular note, the Brazilian authorities are putting together a stimulus plan amounting to BRL12 trillion (USD233 bln) or roughly 10% of country gross domestic product.

Largely everywhere, fiscal and monetary authorities are following that policy stratagem of doing whatever it takes to make sure the center holds.

What’s interesting to note is the over-arching question of credibility, or to elaborate: Does a borderline investment grade emerging market country really have “sand enough” – to cite a 19th century expression – to engage in such dramatic policy actions? Does such a country foster the same level of trust among savers and investors than, say, a reserve currency issuing country does – especially when credulity may be strained all around? Desperate circumstances have compelled leaps of faith. The following months will hopefully show us a variety of successful landings.

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