Anchor Lisa Mullins speaks with Time magazine's business and economics columnist, Justin Fox, about the places around the world hardest hit by the financial crisis.
This text below is a phonetic transcript of a radio story broadcast by PRI's THE WORLD. It has been created on deadline by a contractor for PRI. The transcript is included here to facilitate internet searches for audio content. Please report any transcribing errors to theworld@pri.org. This transcript may not be in its final form, and it may be updated. Please be aware that the authoritative record of material distributed by PRI's THE WORLD is the program audio.
LISA MULLINS: The economies of the United States and Britain may be in sorry shape, but they're healthier than some. Justin Fox is the Business and Economics Columnist for Time Magazine. Justin, what parts of the world are most likely to be hardest hit by this financial crisis?
JUSTIN FOX: It's parts of the world that are poorer, but are part of the global financial system. So, they've been borrowing money, basically.
MULLINS: So these are the ones that are more integrated in the rest of the world's system?
FOX: Basically, yes. You're some African country without major commodity products and not much of a financial system, I don't know that you feel this crisis, other than maybe in terms of aid – the level of aid coming in. But if you're Poland, and you've been rising quickly economically and doing so by borrowing lots of money in foreign currencies, you're suddenly in a world of trouble.
MULLINS: Give me more specifics on Poland because we keep hearing about it time and time again. What are the particular characteristics of the economy there, again that make it more vulnerable?
FOX: Well, the particular issue, and it's kind of amazing that this is happening again because it was sort of at the core of the whole Asian currency crisis in the late nineties, it's basically: if you're borrowing money not in your own currency, and suddenly the world decides your currency isn't worth so much anymore, you're bankrupt in a flash. And Poland, it's this totally bizarre thing where a large percentage of Polish homebuyers have been doing their mortgages in Swiss francs simply because they could get much lower interest rates that way, and banks were crazy enough to let them do that. And so, suddenly now there's this great fear that the Poles can't pay this back, and it's not in their own currency; that's where you get a real crisis. That's what happened to Iceland as well.
MULLINS: All right, you're talking about borrowing in dollars or other currencies. How about looking at commodities? A lot of poorer or developing countries rely on commodities and commodity production for their wealth – oil, for example. With the price of oil dropping, other commodities dropping as well? What's happening to those countries' economies?
FOX: That's turning out to be a real issue, and it's kind of funny – a couple months ago, I was talking to the head of Coca-Cola in Africa. It must have been late September, early October, and the whole world seemed to be collapsing here in New York, and he was sort of, “Well, what do I care about a global financial crisis? We're not part of the global financial system.†And most African countries really aren't; South Africa is, but the rest aren't. The issue is that Africa is a source of chrome and copper and oil and all of these other things, and now that those markets have collapsed, yeah, that's an issue. And it's sort of the broader question. A year ago, there were lots of people in emerging markets – China, India and lots of smaller countries – saying, “Okay, the U.S. is having a problem, and it'll hit Europe, but we're just gonna coast right through it.†It's clear that it's not going to work that way.
MULLINS: Well, also adding to that is the fact that there are many countries who rely on aid money, and aid money is drying up.
FOX: Yeah. It's the classic thing where, in the U.S., when you look at whose incomes have dropped the most, it's, you know, investment bankers, mortgage brokers, all of that, but they're not the ones who are going end up out on the street; it's people who are already at the subsistence level, and just, you know, lose a little bit of their income, and that's enough to wipe them out. And that's sort of what's happening on a global scale. Wealthier countries have more cushions, and poorer countries have fewer.
MULLINS: Although what happens to that cushion, for the United States, for instance, when a continent such as Africa, when a country such as Iceland or Poland encounters economic trouble? Which of the countries that are in trouble right now are likely to have the worst repercussions for the U.S., which is in such dire straits of its own?
FOX: I mean, I think the greatest fear for the U.S. is global instability, war, unrest, things like that. In sort of financial terms, what's happening – and it's, in a lot of ways, desperately unfair – but what's happening when you have a big financial crisis like this, is the money sort of comes back to the center of the financial system. And for the moment, there's no one quite ready to replace us, and so the United States is in a better shape to weather this right now than the rest of the world, even though we caused it.
MULLINS: Justin Fox is the Business and Economics Columnist for Time Magazine. He writes the Curious Capitalist blog at time.com. Justin, thank you.
transcript
Justin Fox's blog "The Curious Capitalist"