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Renaissance Capital’s Tchakarov Comments on U.S. Debt, Markets

Ivan Tchakarov, chief economist at Renaissance Capital in Moscow, comments on how U.S. debt talks may affect emerging markets. He spoke by telephone from the Russian capital today.

“I think that when the markets open on Monday not only emerging markets but all markets will fall, because unfortunately the deadline is approaching.”

“The closer the deadline, the more nervous markets will become. So I definitely think that tomorrow we are going to have some decline in the market.”

“Russia may suffer even a little bit more than the average emerging market economy.”

“Most investors and analysts are operating under the assumption that some resolution will be found before Aug. 2. There does not seem to be appetite in United States or public support for a default. This is very different than back in 2008 during the Lehman case, when there was a desire in the public domain for major investment bank collapses. Again, I think the lesson was learnt and at this point in time the assumption is this will not happen. It is difficult to speculate how much markets will fall, but one thing is sure: the closer we get to the deadline, the bigger the losses will be.”

“If the United States were not to pass an increase in the debt ceiling, interest rates in the United States would probably rise. And because of the very interconnected global market, this would mean that interest rates around the world would rise, including in emerging markets. Even more so, because usually what happens is that when interest rates in developed economies increase, interest rates in emerging markets rise more, because actually markets place a certain risk premium on investing in emerging markets.”

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