Hyundai Economic Research Institute "Possibility of Economic Crisis in Emerging Countries like Argentina Due to COVID-19"

[Asia Economy Reporter Yu Je-hoon] An analysis has emerged that some emerging countries, including Argentina, could face an economic crisis due to the novel coronavirus infection (COVID-19) situation.

On the 10th, Hyundai Research Institute stated in its report titled 'Possibility of Emerging Market Crisis Due to COVID-19' that "Considering market volatility and domestic and international conditions, Argentina's risk level is the highest."

According to Hyundai Research Institute, the credit default swap (CDS) premiums of emerging countries in Southeast Asia and Latin America are on the rise. CDS is a derivative product that compensates for losses when the bond-issuing country or company defaults; when the default risk increases, the premium attached to it also rises. In particular, Argentina's CDS premium surged from 3000 basis points at the beginning of this year to recently 32,000 basis points.

Regarding exchange rates, the currency values of Brazil, Mexico, Colombia, South Africa, and Russia have depreciated. However, Hyundai Research Institute explained, "The current depreciation rate is lower than that during the financial crisis."

In terms of foreign exchange reserves, a sharp decline trend was observed in Turkey, Hungary, and Chile. However, except for these countries, the decrease rate of foreign exchange reserves in other emerging countries was found to be lower than that at the time of the financial crisis.

Some emerging countries have also faced increased fiscal soundness risks as each country has implemented expansionary policies due to COVID-19. In Argentina, the government debt-to-GDP ratio expanded to 86.1%, and Brazil's ratio was also high at 82.5%.

Hyundai Research Institute stated, "In terms of emerging market financial market volatility and domestic and international conditions, the COVID-19 crisis is at a lower level than the 2008 global financial crisis, but there is a possibility of crisis in some countries such as Argentina," adding, "By monitoring the domestic and international conditions of emerging economies, it is necessary to prepare for the possibility of sudden fluctuations in real and financial markets and to minimize the contagion of the crisis through preemptive responses if a crisis situation occurs."

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