:00:00. > :00:00.shot and secretly buried by the IRA. Mr Bell denies the charges. I will
:00:00. > :00:08.have more for you at 9pm. Now it is time for Talking Business with Linda
:00:09. > :00:12.Yueh. As the US Central Bank met under its new chair, Janet Yellen,
:00:13. > :00:16.for the first time, emerging economies, like Turkey, remain in
:00:17. > :00:20.the spotlight as the era of cheap money gradually comes to an end. Are
:00:21. > :00:25.there lessons to be learned from the last big crisis in Asia a decade and
:00:26. > :00:48.a half ago? In Singapore, I'm Linda Yueh and we are Talking Business.
:00:49. > :00:53.Welcome to the programme. Ever since last May, when the US Central Bank
:00:54. > :00:59.signalled that the era of cheap money was coming to an end,
:01:00. > :01:03.investors took their money out of riskier emerging economies. When the
:01:04. > :01:06.money left in the late 1990s, a crisis hit those devoting countries.
:01:07. > :01:12.50 years later, could the same thing happen again? I went to find out how
:01:13. > :01:22.Turkey, described as the most fragile of large emerging countries,
:01:23. > :01:28.was faring. Where East meets West. Istanbul, the bridge between Europe
:01:29. > :01:33.and Asia. Turkey is a strategic country that investors had
:01:34. > :01:40.favoured, as the flow of cash from the US slows, fragility is now
:01:41. > :01:44.exposed. For Turkish companies like Ramsey, which supplies formal wear
:01:45. > :01:50.for Liverpool Football Club, it's a worrying time as consumers spend
:01:51. > :01:55.less. Since the signal of the end of cheap money, it's harder to borrow
:01:56. > :02:00.and spend than before. It's not a comfortable time at the moment.
:02:01. > :02:04.Unfortunately, the last year or two, the business has been sort of
:02:05. > :02:10.shaking. For factories like this one, producing power generators, the
:02:11. > :02:14.cooling economy is a worry. Some Turkish companies have also borrowed
:02:15. > :02:22.too much from foreign creditors that make them particularly vulnerable if
:02:23. > :02:27.demand slows. Export is very important for the Turkish economy.
:02:28. > :02:31.The owner tells me that relying on overseas customers will be key for
:02:32. > :02:39.growth. It is a big change from a year ago. Turkey's economy had been
:02:40. > :02:45.the envy of Europe. GDP growth was over 8% before the slowdown.
:02:46. > :02:50.Inflation had dropped to 7% from 120% a decade ago. It paid off its
:02:51. > :02:55.last loan to the IMF and was about to become a creditor for the first
:02:56. > :03:01.time in 52 years. During the boom times the money flowed in and lead
:03:02. > :03:06.to a lot of borrowing. What a difference a year makes. Now, as the
:03:07. > :03:13.money is stopping, while all of that debt borrowed by households and
:03:14. > :03:18.firms lead Turkey into crisis? Along the Bosporus, commuters go about
:03:19. > :03:22.their daily business. It is a calm that has already been broken
:03:23. > :03:25.regularly since last summer. Across Istanbul, protests have erupted
:03:26. > :03:33.against the Erdogan government and over corruption. Despite Turkey's
:03:34. > :03:37.large and young population of consumers, the end of cheap money
:03:38. > :03:42.from the Fed, a lot of debt owed to foreigners and political protests do
:03:43. > :03:46.not make for an attractive combination to investors. For Europe
:03:47. > :03:52.on the brink of recovery, the last thing that it needs is a crisis on
:03:53. > :03:55.its doorstep. I also caught up with turkey's Finance Minister, Mehmet
:03:56. > :04:00.Simsek, who expected growth to slow as a result of the Fed's actions and
:04:01. > :04:04.political protest over the past year, but didn't think that the
:04:05. > :04:10.country would suffer a crisis. Growth is likely to slow down but we
:04:11. > :04:16.will be willing to live with more modest growth. Consumer confidence
:04:17. > :04:23.has collapsed, but industrial output is up by 7.3%. It's rather unusual,
:04:24. > :04:28.I was surprised. Even though we may experience some slowing down, I
:04:29. > :04:35.think it is unlikely to be sustained because what is happening was on the
:04:36. > :04:41.back of this domestic and political noise. Is, in your kind of analysis,
:04:42. > :04:47.how much of the fall of the Lee Roth, how much of the concerns over
:04:48. > :04:50.Turkey is due to the fact `` the Fed, versus change in your own
:04:51. > :04:58.domestic circumstances, whether economic or political? If you focus
:04:59. > :05:03.on made to mid`December last year, I would say significant, substantial
:05:04. > :05:11.portion of currency weakness is attributable to the Fed decision. If
:05:12. > :05:18.they have provided good clarity from May onwards as to when and how...
:05:19. > :05:24.Now it's a little bit better. Markets, once you provide the
:05:25. > :05:28.clarity, they are just, we will adjust. But when there is
:05:29. > :05:32.uncertainty, and that is where the problem comes in. That was the
:05:33. > :05:36.Turkish Finance Minister, Mehmet Simsek. Up until now, the biggest
:05:37. > :05:41.financial crisis in emergency economies had been the Asian crisis
:05:42. > :05:47.in 1997 to 1998. It started in Thailand and spread out. These
:05:48. > :05:52.countries have boomed and seen money flow into their borders. As a
:05:53. > :05:58.result, foreign debt exceeded 180% of GDP. But, as the first bankruptcy
:05:59. > :06:04.started in Thailand, the money left the region. To attract cash,
:06:05. > :06:09.interest rates shot up to 65% in Indonesia, 40% in Malaysia and 32%
:06:10. > :06:13.in the Philippines. National output fell from between 17% to 40% in
:06:14. > :06:23.those countries during the crisis. Joining me to discuss whether there
:06:24. > :06:26.are parallels between Turkey and emerging economies now, as compared
:06:27. > :06:28.with the Asian financial crisis, and whether there are lessons to be
:06:29. > :06:31.learned from the crisis of the late 1990s are Francois Lancon, president
:06:32. > :06:35.and managing director for German software giant SAB. Geoffrey
:06:36. > :06:40.Heenan, Singapore's representative to the International Monetary Fund.
:06:41. > :06:44.And Jonathan Cavenagh, senior foreign exchange strategist for
:06:45. > :06:47.Westpac. Do you see parallels between what happened to Asia 15
:06:48. > :06:53.years ago on what's happening now in emerging economies? I don't see that
:06:54. > :06:57.many parallels, it's a fundamentally different issue. The economy is a
:06:58. > :07:00.much stronger, the fundamentals are different if you look at the
:07:01. > :07:09.consumers and a different level of spending. The need for technology is
:07:10. > :07:17.much higher. We are investing about $2.5 billion in those economies over
:07:18. > :07:21.the next few years. Geoffrey, when people look at the impact of money
:07:22. > :07:28.that has flowed in and the build`up, that's where the parallels, in. It's
:07:29. > :07:34.true that the build`up of debt and the inflows can lead to vulnerable
:07:35. > :07:41.to use, but the levels that the Fragile five, for example, are
:07:42. > :07:46.experiencing... Indonesia, India, South Africa, Brazil and Turkey.
:07:47. > :07:52.That's right. They were identified as being the most vulnerable in
:07:53. > :07:56.mid`2013. But if we were to look at the fundamentals of those economies
:07:57. > :08:02.in terms of external debt, the amount of short`term debt to GDP,
:08:03. > :08:06.these were all lower than the Compper for countries which were
:08:07. > :08:11.involved in the Asian financial crisis. Not only that, the Fragile
:08:12. > :08:19.five have higher levels of reserves. They also have far better
:08:20. > :08:24.policy frameworks. In particular, all of them have floating exchange
:08:25. > :08:27.rates which have, to some extent, allowed them to whether this
:08:28. > :08:36.volatility in the change in global markets. Isn't one of the issues
:08:37. > :08:40.when money starts to cost more, it's less cheap, then investors pull out
:08:41. > :08:44.of riskier emerging economies, and that is essentially what happened in
:08:45. > :08:49.the late 1990s, they had a massive pull`out. The driver now is the
:08:50. > :08:52.Central Bank in the US. Not printing as much money, but you don't have as
:08:53. > :08:56.much cheap money as you had. Investors think again about where
:08:57. > :09:00.they put their money. That is right. That was a big issue for some of
:09:01. > :09:06.these emerging markets through the course of 2013. But I don't see it
:09:07. > :09:11.as being a huge issue as we progress through the rest of this year. If
:09:12. > :09:15.you look at a market like Indonesia, foreign investors are still holding
:09:16. > :09:18.a record amount of their bonds. If foreign investors were incredibly
:09:19. > :09:22.concerned about the Indonesian outlook, I think we would have seen
:09:23. > :09:25.a lot of disinvestment out of that target market. Since the start of
:09:26. > :09:31.this year, foreign investor holdings of Indian bonds have climbed 30%.
:09:32. > :09:36.There is still a case for money to be put to work into emerging
:09:37. > :09:39.markets. If the broader investment community was that concerned, I
:09:40. > :09:44.think we would have seen the continued outflow story. That hasn't
:09:45. > :09:47.been the case. I'm going to put you on the spot. The fundamentals are
:09:48. > :09:51.good, they've learned their lessons, they borrowed less in
:09:52. > :09:55.foreign currencies and yet people in the market was selling these
:09:56. > :09:59.countries off like crazy when they first started to talk about
:10:00. > :10:06.tapering. What a difference less than a year makes. When the agenda
:10:07. > :10:10.comes onto the market like this like it did last year, you can pinpoint
:10:11. > :10:13.this to when Ben Bernanke first mentioned that word. You can plot
:10:14. > :10:17.how some of these emerging market currencies started to trade after
:10:18. > :10:22.that. The correlations across different emerging markets tend to
:10:23. > :10:26.be strong. Investors tend to sell first and ask questions later. Now
:10:27. > :10:31.that we've got our idea around what tapering actually means, so the Fed
:10:32. > :10:35.balance sheet is still expanding but it's just expanding at a slower
:10:36. > :10:42.rate. US interest rates at the short end of the curve remain very low.
:10:43. > :10:45.They are the row. That's right. If you can get a much better yield in
:10:46. > :10:50.somewhere like Indonesia or India, that is still going to be attractive
:10:51. > :10:55.to some of these investors. For you, what determines confidence in these
:10:56. > :11:00.countries? We talk to customers will stop if you look at the customers,
:11:01. > :11:05.will you have fundamentally three segments. The governments. The
:11:06. > :11:08.government are either investing in infrastructure, or if they are not
:11:09. > :11:11.because of some reasons, we are in talks with them about future
:11:12. > :11:16.infrastructure project. Either it's happening all it's bound to happen.
:11:17. > :11:21.The second segment is the local companies, but the big shift we see
:11:22. > :11:26.from ten years ago, the local companies are becoming global. A
:11:27. > :11:31.typical example is in Indonesia. By 2015, if they don't go in other
:11:32. > :11:35.countries, somebody will come to them. The third is the small and
:11:36. > :11:42.medium business. That is technology. That's what makes us
:11:43. > :11:45.confident. I sort of feel like we're downplaying some of the issues in
:11:46. > :11:47.some of these countries. I didn't want to downplay it. There
:11:48. > :11:51.definitely are some issues. With the countries that did suffer the most,
:11:52. > :11:54.what that illustrates in the last 12 months is that the countries that
:11:55. > :11:57.have been most affected and had the most pressure on exchange rates and
:11:58. > :12:04.local asset prices have had weaker external positions and higher
:12:05. > :12:09.inflation. This is reflecting the build`up of vulnerabilities. What we
:12:10. > :12:14.have seen in most cases is significant and meaningful policy
:12:15. > :12:17.responses. In Indonesia, India, Turkey, there have been increases in
:12:18. > :12:19.interest rates to deal with high inflation, and to reduce and
:12:20. > :12:27.reorient the economy, perhaps to reduce the external financing
:12:28. > :12:30.requirement. But in the medium to long term, we still need to see
:12:31. > :12:46.structural reforms across emerging markets. I'll come to you on the
:12:47. > :12:49.same topic. Some of these economies do have structural problems. They do
:12:50. > :12:53.need to have structural reforms. It's not just a case of easy money,
:12:54. > :12:58.is it? We shouldn't downplay some of the big challenges of growth. No,
:12:59. > :13:00.most definitely. I think for a long period of time, the quantitative
:13:01. > :13:09.easing at the Federal Bank has allowed some of these countries to
:13:10. > :13:12.paper over some of their problems. I'd like to go around and try to
:13:13. > :13:17.help our viewers to differentiate amongst emerging economies.
:13:18. > :13:20.Sometimes it does get discussed as a class, but some are doing better
:13:21. > :13:23.than others in terms of growth, reforms, not having external
:13:24. > :13:27.vulnerabilities. Francois, which emerging economy do you think is
:13:28. > :13:30.well positioned going forward? I think Southeast Asia overall will
:13:31. > :13:38.benefit from the economic activity and have a bit of an edge. People
:13:39. > :13:46.are investing strongly today in India and Brazil. I wouldn't want to
:13:47. > :13:50.necessarily give investment advice. I would like to say that Asia, one
:13:51. > :13:59.thing that has happened, there was a bit of turmoil through January and
:14:00. > :14:03.fabric, and Asia was less affected. `` February. That reflects the fact
:14:04. > :14:08.that investors are differentiating. How about you? I think one of the
:14:09. > :14:12.safest places in Asia for us would be in Korea. We think that's... I
:14:13. > :14:16.mean, you compare Korea now to back in the 80s. It is a vastly different
:14:17. > :14:20.situation. I think Korea has almost a safe haven status at the moment.
:14:21. > :14:25.We're seeing inflows into the bond market from lots of different
:14:26. > :14:31.countries. There is definitely a big tick there. Strong current account
:14:32. > :14:34.surplus. Strong central bank etc. If investors were going to put their
:14:35. > :14:39.money into one market, we think that is a safe one. Things that we are
:14:40. > :14:46.still concerned about ` India and Indonesia still have a lot to do on
:14:47. > :14:49.structural reform. But there is a lot of upside potential there. It
:14:50. > :14:52.would not take much in terms of some positive reforms to really unleash
:14:53. > :14:58.some very strong growth, particularly in India. So I think
:14:59. > :15:02.India will be fascinating to watch over the next kind of two or three
:15:03. > :15:06.months as we see the election unfold and what the potential new
:15:07. > :15:13.government can deliver. Thank you all very much. All of these show the
:15:14. > :15:20.economy is finally recovering after the global financial crisis, but is
:15:21. > :15:23.it sustainable? Over the past few months, we took Talking Business to
:15:24. > :15:25.people in the US, UK and Hong Kong to find out if the world and British
:15:26. > :15:36.economy is truly on the mend. After five years of slow growth, the
:15:37. > :15:43.outlook is starting to look brighter for the global economy. Nowhere more
:15:44. > :15:48.so than Britain. This year, the economy will finally recover to the
:15:49. > :15:51.size it was before the crash. And believe it or not, the growth rate
:15:52. > :16:01.is even outpacing that of other rich countries. You can't miss our saying
:16:02. > :16:03.it, forecasters are forecasting it. But when will it feel like a
:16:04. > :16:16.recovery to us? YELLING.
:16:17. > :16:19.Memories of the crash are still fresh. Unemployment remains high.
:16:20. > :16:21.Price rises have squeezed our incomes, and our pay isn't keeping
:16:22. > :16:30.up. It's a similar picture in America,
:16:31. > :16:36.where the housing crash set off the global financial crisis. Small towns
:16:37. > :16:47.like Crisfield, Maryland, have been in an economic deepfreeze. I met
:16:48. > :16:52.with the mayor, PJ Purnell, and asked him how the town was faring.
:16:53. > :16:55.There was a joke we used to tell around here ` if we had a
:16:56. > :16:58.depression, it would take us ten years before we knew it because we'd
:16:59. > :17:05.been depressed for so long. CHUCKLES. It's small towns like this
:17:06. > :17:12.one the US central bank, the Federal Reserve, must help. Its head hands
:17:13. > :17:20.over a tough task to the new federation chair, Janet Yellen. Boom
:17:21. > :17:23.turned to bust, and to support the recovery, he flooded the economy
:17:24. > :17:36.with cheap cash for five years and kept rates low.
:17:37. > :17:45.Consuming based on borrowing is what got us into a mess before. Now in
:17:46. > :17:48.the UK, we are borrowing even more. In fact, household debt is at a
:17:49. > :17:53.record high, even higher than before the crash.
:17:54. > :17:57.It's because five years ago, interest rates were slashed to a
:17:58. > :18:03.smidgen above zero percent to support the recovery. The problem is
:18:04. > :18:06.previously, when rates were low, cheap credit also helped fuel a
:18:07. > :18:13.housing boom that eventually went bust.
:18:14. > :18:17.PHONE RINGS. With rates now at the lowest that
:18:18. > :18:25.they have ever been, is it creating another housing bubble? A house like
:18:26. > :18:28.that at $3 million... I met the editor of Money Week, who tells me
:18:29. > :18:35.that her readers are most concerned about the housing market. It doesn't
:18:36. > :18:40.sound like the recovery is being driven by sustainable drivers. At
:18:41. > :18:43.the moment, it would be very hard to argue this is a sustainable
:18:44. > :18:46.long`term recovery. Three quarters of the growth over the last couple
:18:47. > :18:51.of years has clearly come from financial services, and the rest
:18:52. > :18:54.from housing. This is taking us back to the mistakes we made before,
:18:55. > :18:57.relying on two sectors to drive everything. We need more
:18:58. > :19:00.manufacturing, we need exports, we need a broader spread of sectors
:19:01. > :19:06.driving things, and also things that aren't purely driven by very low
:19:07. > :19:09.interest rates. You have to remember that the housing market is almost
:19:10. > :19:16.entirely driven by the price of money, which is interest rates. One
:19:17. > :19:20.day that has to rise. Is it the right kind of recovery? When rates
:19:21. > :19:23.go up, debt could become unsustainable, while relying on debt
:19:24. > :19:32.to grow could just result in another crisis. What is the alternative? How
:19:33. > :19:36.well can a country grow without relying on borrowing?
:19:37. > :19:50.ORIENTAL MUSIC. Japan is a country that has been
:19:51. > :19:54.through it. It no longer grows via debt after its housing market
:19:55. > :20:04.crashed. And it's been stagnant ever since.
:20:05. > :20:09.I went along to see the economist who wrote the definitive book on
:20:10. > :20:16.Japan, and asked Richard Koo why growth has not returned. Japan
:20:17. > :20:19.doesn't seem like it has come through it, even though as you say,
:20:20. > :20:23.the bubble burst 20 years ago. The trauma with debt, which I think
:20:24. > :20:26.Europe will face soon, maybe the UK and US once the balance sheets are
:20:27. > :20:31.repaired, that's when you realise people are still not borrowing
:20:32. > :20:37.money. This is a very difficult problem to get hold of, because it's
:20:38. > :20:41.a psychological problem. If it is a mechanical problem, you do this, and
:20:42. > :20:44.then something will happen. But it's a psychological problem. Until you
:20:45. > :20:48.get over the trauma, you have to keep on trying different measures
:20:49. > :20:52.until you get over the trauma. How did the US get over the trauma after
:20:53. > :20:56.the great depression? It took them a long time. It took 30 years,
:20:57. > :21:05.until1959, for interest rates to return to the average of the 1920s.
:21:06. > :21:12.The great depression started in 1929. It was 1959 when interest
:21:13. > :21:15.rates finally returned to 4%. Both at the short and long end. It took
:21:16. > :21:27.that long. Due to being traumatised by debt,
:21:28. > :21:30.Japan's growth has been slow. It's because without relying on debt,
:21:31. > :21:36.what you spend depends on what you earn. And that is not helped by an
:21:37. > :21:43.ageing population, where there are more pensioners than young people in
:21:44. > :21:48.work. This is what the West worries about ` lower demand and permanently
:21:49. > :21:51.slower growth. If Japan can reverse its stagnation, then there is hope
:21:52. > :21:58.for the UK and US, who are facing tepid recovery five years after
:21:59. > :22:02.their banking crises. If Japan can't, then it's a glimpse of the
:22:03. > :22:15.future of other rich countries who have the same ageing population but
:22:16. > :22:18.are just a few years behind Japan. The government aims to squeeze more
:22:19. > :22:24.out of workers, like these in Tokyo's fish market. If they are
:22:25. > :22:25.more productive, then their bosses will pay them more, and the recovery
:22:26. > :22:38.would be on a sounder footing. It's not just the developed
:22:39. > :22:46.economies. China's population is also shrinking. So it's not an easy
:22:47. > :22:51.choice anywhere. Growth via debt may ultimately be unsustainable. But the
:22:52. > :22:57.alternative could be slower growth than what we're used to. The global
:22:58. > :23:00.and British economy will be recovered this year, although it may
:23:01. > :23:05.be some time yet before it feels like it. But importantly, growth has
:23:06. > :23:11.returned, and tomorrow looks more promising than today.
:23:12. > :23:16.The global economy is recovering. Actions continue to have a big
:23:17. > :23:21.impact, and emerging economies are in the spotlight. There are
:23:22. > :23:24.parallels between the last big crisis in Asia and now. Countries
:23:25. > :23:27.like Turkey, they will hope that investors continue to have faith in
:23:28. > :23:30.their growth potential, which could help them weather the current
:23:31. > :23:37.concerns that are hurting investor confidence. That's all we have time
:23:38. > :23:42.for. Check out our website, and me on Twitter. Join us next time for
:23:43. > :23:58.more Talking Business with me, Linda Yueh.
:23:59. > :24:05.Reports of a fuel hail showers today. Area is cold enough for
:24:06. > :24:06.winter nears certainly. We will find