Reinhart Says Emerging Markets Could Get ‘Ugly’ as Outflows Grow

Carmen Reinhart, a Harvard University economist and co-author of a history of debt crises, said emerging markets are deteriorating as the U.S. recovers and may worsen as global interest rates begin to increase.

“It could get very ugly,” Reinhart said today in a Bloomberg Television interview with Sara Eisen from the Federal Reserve’s annual conference in Jackson Hole, Wyoming. “Emerging markets had a capital flow bonanza lasting several years, the golden boom years, and the probability of a banking crisis, the probability of a currency crash, the probability of a default, all increase afterward.”

While the U.S. is “on the road to recovery,” the world’s largest economy still isn’t ready for a “substantial withdrawal of stimulus,” said Reinhart, a professor of international finance at Harvard’s Kennedy School of Government. Europe is “very far” from recovery and emerging markets “are heading in the other direction,” she said today.

Stronger U.S. growth and speculation the Fed will scale back bond purchases have helped erase about $1 trillion from the value of emerging-market stocks worldwide since May, data compiled by Bloomberg show. The MSCI Emerging Markets Index has declined 12 percent this year, compared with a 12 percent gain for the MSCI World Index of companies in advanced economies.

India, Indonesia

India’s S&P BSE Sensex and Indonesia’s Jakarta Composite Index both fell to 11-month lows this week, while Turkey’s lira fell to a record low versus the dollar. In the U.S., the yield on the benchmark 10-year Treasury climbed to a two-year high of 2.9 percent as of 8 a.m. in New York.

Reinhart, 57, previously worked at Bear Stearns Cos., the International Monetary Fund and the University of Maryland. Her views carry weight as the co-writer of the 2009 book “This Time Is Different: Eight Centuries of Financial Folly” with her Harvard colleague Kenneth Rogoff.

Reinhart at the 2010 Fed symposium presented a paper, “After the Fall,” co-written with husband Vincent Reinhart, the chief U.S. economist and co-head of global economics at Morgan Stanley. The paper concluded unemployment in developed countries is about 5 percentage points higher on average in the decade after financial crises than in the prior 10 years.

To contact the reporter on this story: Jeff Kearns in Washington at

To contact the editor responsible for this story: Chris Wellisz at

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