Polish inflation and Zloty devaluation

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Polish inflation and Zloty devaluation
Devaluation
Inflation
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Direct costs of September 11 Attacks
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• OCTOBER 29, 2001 BusinessWeek Now,
  Argentina's Default Looks Inevitable With the
  U.S. preoccupied, a bailout is unlikely Things
  in Buenos Aires seem to be going from bad to
  worse. Any hopes that Argentina would eventually
  emerge from a four-year recession were snuffed
  out by the September 11 terrorist attacks, which
  dealt a body blow to the global economy.
  Argentine bonds are now trading at less than 60
  cents to the dollar. Meanwhile, local interest
  rates have soared to a punishing 35, even for
  blue-chip borrowers. These are signs that the
  markets believe that Argentina cannot go on
  servicing its 132 billion national debt. U.S.
  rating agencies are assuming as much. On Oct. 9,
  Standard Poor's Corp. downgraded Argentina's
  sovereign debt rating to CCC, putting the
  country on a par with deadbeats such as Ecuador.
  Rival Moody's Investors Service quickly followed
  suit.
• Wall Street has already resigned itself to the
  idea of an Argentine default. A recent survey of
  emerging-market portfolio managers by Morgan
  Stanley Dean Witter Co. revealed that 85 now
  believe default is inevitable.

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Emerging Economies Net capital flows
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A Busang Lesson

• The root problem that Bre-X faced was the absence
  of the rule of law in Indonesia. This political
  risk takes on the form of creeping
  expropriation, something not easily insured.
• Rule of law, taken for granted in developed
  economies, is often missing in emerging
  economies. Why?
• The ruling class benefits more from discretion
  than from the rule of law.
• Discretion or non-transparency gives the ruling
  class the means to extract rents from the
  society.
• The cost of the economic inefficiency is borne by
  the population.
• Rule of law would limits the power of the ruling
  class.
• The absence of the rule of law in most developing
  countries is not simply a result of history. It
  is what keeps emerging economies always emerging.
  
• Portfolio investors would often stay away from
  some emerging markets where creeping
  expropriation/corruption is suspected to be
  serious.
• Direct investors can, in theory, manage this
  risk. But managing this kind of political risk
  is not easy. Barrick tried to take advantage of
  the environment, but failed miserably.

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Foreign direct investment vs. portfolio investment

• FDI, according to the IMF, is an investment that
  is made to acquire a lasting interest in an
  enterprise operating in an economy, other than
  that of the investor, the investors purpose
  being to have an effective voice in the
  management of the enterprise.
• Portfolio investment is passive.
• FDI allows the use of almost all risk management
  techniques.
• Portfolio investors can only vote by money and
  employ financial market based risk hedging.