Two crises ahead of Asia

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Two crises ahead of Asia

Do countries learn by their mistakes? Latin America has made many but this time it got things right. Prompt government action has contained volatility so far. Economists have been studying the winning policies. But can these lessons be taught or must they be gained from experience? Brian Caplen reports.

When investors choose Mexico as a safe haven, it's clear the world has changed profoundly. The collapse in Asian markets and the robustness (so far) of Latin America have sent economists into a huddle. With policy regimes as different as Chile and Argentina proving successful, drawing firm conclusions will be tough. Eventually fully-formed economic theories may emerge.

Fundamentals

Right now a few things are obvious: a strong banking system is the backbone of development, democracy works better than dictatorship over the long term and capital controls are back in favour. But nothing can take the place of strong fundamentals. It is these more than anything that have saved Latin America and led analysts to heap praises on Mexico and to a lesser extent Brazil.

Net money flows in (+) and out (-) of equities
(All flows are net in $ million )
Money flow  week ending January 29   Money flow week ending  February 5
Argentina

Major ADRs

12.8

33.8

Underlying local shares

16.3

5.2

Remainder of local shares

-4.9

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