Local Showdown with the Global Downturn – Two Patterns of Dealing with “Toxic Assets” Emerge: Developed Economies Assimilate while Emerging Markets Use Targeted Mitigation Policies
Alexander Mirtchev, prominent Washington-based economic expert and global strategist, discussed the international economic stabilization plans and steps to jump-start faltering financial institutions in the emerging markets with EuroWeek, a publication that covers the international capital markets.
In an exclusive interview granted to this influential professional publication, Dr. Mirtchev explained that some of the rapidly expanding and emerging market economies in the world are better-positioned than others to deal with the pressures of the global credit crunch and economic downturn. He believes that in China, India, Brazil, Russia and certain other markets, the implementation of extensive fiscal stabilization tactics, combined with recapitalization, extensive lending provisions and liberalization of reserve requirements can yet insulate the leading banks from the negative pressures of the global financial crisis. As president and founder of Krull Corporation, Dr. Mirtchev advised monetary officials of a number growing and developing economies how to implement such measures to address liquidity and solvency concerns and thereby avoid wholesale takeovers by the state.
"In this current economic struggle, it is important that rapidly expanding economies do not cut short the modernization drive and free market agenda for improved productivity and competitiveness that will enable them to compete in healthier economic times," Dr. Mirtchev told EuroWeek. He considers that governments are better off not "addressing the banks' functionality but simply helping them to pay their debts and to lend to clients."
Such measures should be "based on market principles so that nobody is forced to cede equity to the State and the banks have the option to buy back the shares sold to the government at any stage." He considers that government support to the financial institutions in emerging markets should not be a "free lunch," and, more importantly, avoid making the government the one that "picks the winners and the losers" -- "the shareholders and major investors in these banks should put up funds to save the institutions as it is as much in their own interest as in the government's," he said.
"Barring further major disturbances, the markets could react to this raft of measures by rebounding around the middle of 2009, on the basis of rising confidence. The extent of such a rebound would differ from sector to sector -- the higher the confidence in the political will to make the tough decisions necessary for supporting economic recovery, the better the markets will react," Mirtchev indicated. He also stated that "Emerging markets are subject to the same pressures as the rest of the world, but they will react differently." For example, in the case of Kazakhstan, he pointed out that a "stabilisation and growth package targeted to manage the economy through this slow-down" has been put in place, but that "the measures differed from those adopted by the US and the UK in that they address the liquidity problems in the banks as well as work to stimulate struggling parts of the country's economy."
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 EuroWeek and Mergermarket, visit www.euroweek.com and 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.