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June 11, 2008

Are Countries Playing Economic Chicken?

Here's a thought: Are too many countries playing a kind of economic chicken? Their refusal to control stimulative policies, despite increasing inflation and runaway oil prices, has them in a highly risky position.

Many countries are already experiencing double-digit inflation -- Russia, Turkey, South Africa, India, Indonesia, and the Philippines -- despite recent interest rate increases.

"These guys are falling behind the curve," says Edwin Gutierrez, an emerging-market bond portfolio manager at Aberdeen Asset Management in London, in the hopes that the surge in food and energy prices will prove short-lived. "It's a very dangerous game," says Mr. Gutierrez.

One of the few exceptions? Brazil:

...There, the central bank moved quickly to raise interest rates despite comparatively mild price pressures. The country suffered enormous inflation in the late 1980s and early 1990s before getting the problem under control. "Brazil knows better than anyone what happens with hyperinflation," says Terrence Gray, who manages $3 billion in emerging-market stocks at DWS Scudder, an arm of Deutsche Bank.

[via WSJ]

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