The US Federal Reserve has initiated a long string of interest rate hikes and should soon give us a sense of how it intends to sell assets on its balance sheet (quantitative tightening). In the past, such initiatives fared badly for emerging markets.
At the end of 1993, for instance, the Fed started hiking rates from 2.97%, reaching 6.02% 18 months later in June 1995, causing the dollar to rise and investments to move back toward US shores – and arguably setting a detonator for the infamous South East Asia crisis of 1997. Up to that moment, everyone spoke of the “tiger” economies of Thailand, Malaysia, Singapore, South Korea, and others where annual growth was between 6% and 9%.
“As the dust settled, it became clear how badly damaged the tiger economies were by the financial crisis,” recalls a recent article in the International Banker.
“The nominal GDP per capita between 1996…
