• Chile – a glance at the new Cabinet;
  • Honduras — a new President has taken office;
  • Venezuela – yet another new price control law

ARGENTINA: Having allowed the peso to depreciate sharply, the CB is now trying to re-stabilize the exchange rate, but it will not be able to do this for long. The limited easing of FX controls announced by the government was ill-considered and will not have the desired effect. There is more trouble to come, for the currency and the economy and for President Fernandez also politically.

INDIA: With its latest interest rate hike, the CB is not only giving the rupee support, it also seems ready to embrace inflation targeting. In order for this new approach to succeed, however, the country’s politicians would have to be convinced to spend less. The upcoming elections could produce an unstable government coalition.

JAPAN: The current year will be the critical one for Abenomics, when the government will have to prove it can end deflation and give the economy a noteworthy push. The first and second arrows appear to have been successful and a record trade deficit has seen to it that few in Davos complained about the weakened yen.

MEXICO: The peso has been hit less hard than most other emerging-market currencies by the US Fed’s tapering of QE-3. The main reason is that President Pena Nieto has done remarkably well in advancing his reform agenda and that this has brightened the country’s economic outlook. The bill opening the energy sector is apt to lead to a big increase in FDI inflows.

PERU:  The economy has slowed its growth, but it may already be on a rebound. Inflation is moderate and gives the CB room to keep monetary policy relaxed. President Ollanta Humala, though down in the public opinion polls, continues to surprise critics with his free-market policies.

PHILIPPINES: Reconstruction and storm damage repair is likely to cost considerably more than the authorities had anticipated, but the result will also be a greater economic stimulus. While the peso will continue to weaken, this is not apt to create a serious inflation problem. In the political arena, the government has concluded a peace deal with the Moro Islamic Liberation Front.

SERBIA: The country is now headed for early elections in which the dominant SNS party hopes to strengthen its grip on power so that it can more easily push through much-needed economic reforms. Accession talks with the European Union have begun and Belgrade is also seeking to come to terms with the IMF.

TURKEY: The CB has surprised many, including us, with its interest rate hike to protect the plunging lira. It also went directly against the wishes of the political leadership. So far, the CB’s new strategy appears to be working. For the longer run, structural reforms will be necessary.

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