The classification of countries goes from:
- Developed
- Advance Emerging
- Secondary Emerging
- Frontier
Supporting what I mentioned regarding Argentina in my previous post; it comes as no surprise that they are considering to remove it from the Index. I believe that reasons to further develop why this is happening are not required.
The report had a couple of shocking surprises. First, Greece is classified as developed and they are just now considering a downgrade. I find it surprising because Greece has already requested two bailouts and have several austerity measures in place. Greece is constantly becoming more insolvent and the risk of a default increases. Yet, they are a developed equity index? As I mentioned last time, Krugman and other suggested that Greece should follow Argentina's footsteps in 2001. However, will pretty beaches and fun parties provide a exogenous shock sufficient enough to revive their economy after default? I seriously doubt it. Along this same lines you can find any other PIGS country. However, there are no expectations of a downgrade for the other countries.On the opposite, countries such as Chile, Colombia, Philippines and Russia still have a Secondary Emerging rating.
It is often said that it is important to learn from our mistakes. It seems to me that financial institutions are to stubborn to learn from 2008. Informational asymmetries can have a severe impact on our economy and unless governments decide to regulate these institutions better we will be doomed to keep keep bursting new bubbles. In 1776, a time when financial markets were nowhere near as complex as today, Adam Smith wrote about the importance of regulating the financial industry.
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