WASHINGTON, DC, Jan 11 (MARKET WIRE) –
Alexander Mirtchev( Александр Мирчев), Washington-based economic strategist and expert,
reviewed the actions of governments in the emerging markets in support of
the beleaguered financial sector and their potential effects with
Mergermarket, the partner publication of the Financial Times.
Dr. Mirtchev explained that governments had little choice in taking urgent
measures to the financial crisis. “With the crisis looming, it was not
possible to stick to ideological positions or specific doctrines — you do
not consider the price of the carpet you are using to put out the fire in
your house,” said Mirtchev. However, he believes that it is high time to
look beyond the immediate short-term pressures, and devise a broader
policy response that would address the long-term needs to encourage
productivity, competitiveness and growth. He is of the view that, when
devising such strategies, governments have to take into account the truly
global nature of today’s financial system. “The world financial system
has evolved to the point where no economy functions as a closed circuit.
Economic interaction in a specific market cannot be considered a zero-sum
game.” In the case of emerging markets such as India, China, Mexico,
Indonesia and others, “participation and integration in the global
financial system makes sense,” in particular with a view to the
productivity and growth-generating role that these markets have in the
world economy.
He considers that in the short-term direct government support and
recapitalization can help banks and institutions continue their function
as the mechanism that pumps capital throughout the global economy, and it
seems already unavoidable. However, the key is, at the end of the day, to
face the reality of the newly emerging global financial system of the XXI
century, not to try and “put the genie back in the bottle” by returning to
the model of the 1990s, and jumpstart the new, inclusive financial order
that could accelerate the recovery and sustain growth.
Some emerging market governments have introduced “special enforcement and
monitoring bodies to supervise the use of the funding by the banks, to
ensure that the funds are spent exactly for the purposes required by the
government, i.e. alleviation of the fallout from the credit crunch on
businesses and the population.” In particular, his view is that “the
banks’ shareholders and management will have to share the responsibility
and the burden — there should be no rewards for failure.” In the case of
Kazakhstan, he noted that “the State refrained from direct nationalization
of the banks; rather the government is only offering to buy stakes in
banks leaving them with the choice to accept or decline additional capital
infusion in return for equity stakes.”
Government financial packages to “ensure the stability of the financial
system by propping up the banks for the duration of the crisis will need
to be complemented with comprehensive strategies to support growth,” Dr.
Mirtchev told Mergermarket. “The financial sector’s malaise cannot be
realistically resolved just on the basis of government funding. The market
and private investors would need to be engaged.”
At the same time, Dr. Mirtchev argues that a number of the rapidly
developing economies have better chances of pulling out of the crisis than
some of the mature economies. He said that “due to numerous factors,
emerging markets are much easier to micro-manage. With the right political
vision and will, they should be able to move past the short-term tactics
to the long-term necessity of modernization, productivity and
competitiveness.” He notes that unlike for example U.S. and Japan, many of
the emerging markets enjoy the recent hard-won experience of successful
privatizations. Therefore, their governments know quite well when and how
to exit the companies. He considers that emerging markets would also be
better served by preserving their openness to the global economy. “They
know that being part of the international financial system exposes them to
global shocks. However, they should not forget that this same openness
brought them ten years of booming foreign direct investments that
generated an unprecedented level of economic growth,” Mirtchev indicated.
Dr. Mirtchev is President of Krull Corp., a Washington-based consultancy.
He is also an independent director of Samruk-Kazyna National Welfare Fund
of Kazakhstan, and serves as senior economic adviser to the country’s
Prime Minister.
To read the entire interview with Dr. Mirtchev in Mergermarket, visit
www.mergermarket.com.
About Krull Corporation:
Krull Corporation is a Washington, D.C.-based advisory and project
management firm with expertise in dealing with economic growth,
industrial expansion and restructuring issues. Founded by Dr. Alexander
Mirtchev in 1992, Krull Corporation capitalizes on his extensive
professional experience in market developments and reforms and focuses
primarily on emerging and transitional economies. Over the years, the
firm has provided its clients with outstanding strategic guidance and
professional services in various areas. Combining a unique blend of global
reach and understanding of local markets, Krull is able to consistently
produce high quality results and returns.
