PARIS, Oct 24: Emerging market countries, their once vibrant economies now under increased strain in the global finance crisis, can no longer be counted on help prop up world stock markets.

“The escalation of the crisis revealed or exacerbated existing vulnerabilities (in emerging countries), such as current account deficits, that were ignored when times were good, (when) capital was plentiful,” wrote the RGE monitor newsletter, a publication of New York University professor Nouriel Roubini.

The International Monetary Fund has likewise highlighted the changed circumstances in emerging economies and has declared its willingness to help.

“The crisis is now hurting a lot of emerging markets,” IMF Managing Director Dominique Strauss-Kahn said earlier this month.

“Many countries seem to be experiencing problems because of the repatriation of private capital by foreign investors or the reduction of credit lines from foreign banks.

“We are ready to support these economies and we are in discussions with a number of them.”

Iceland, its economy and banking system hard hit by the crisis, on Friday reached a tentative agreement with the IMF for a credit worth $2 billion that the Fund said was aimed at restoring confidence.

Moody’s analyst Christine Li pointed to Argentina, the Baltic States, Turkey, Hungary and Ukraine as among the most vulnerable emerging countries, “those that relied too heavily on foreign capital to finance their growth.”

For many years robust economic activity in Asia, Eastern Europe and Latin America “served as a cushion for international companies,” shielding them from stock market turbulence, said Jean-Louis Mourier of brokers Aurel.

But first indications of trouble came over the summer when the end of the Olympic Games in Beijing prompted fears of a slowdown in Chinese investment, which subsequently led to a fall in oil and steel prices.

Share prices of powerful Western enterprises such as mining groups BHP Billiton and Rio Tinto, steelmaker ArcelorMittal and US aluminium giant Alcoa all suffered big stock market falls of between 47 and 68 per cent over a period of three months.

Mourier said pessimistic IMF world growth forecasts issued earlier this month intensified investor fears for the fate of “infrastructure and construction companies,” which until then had been sustained by big contracts in emerging countries.

In one case in which developments in an emerging economy heavily impacted a Western market, the Madrid stock exchange, which had largely resisted the global financial crisis, was buffeted on Wednesday by the Argentine government’s move to nationalise private pension funds.

Argentine President Cristina Kirchner moved on Tuesday to nationalise $30 billion in private pension funds, saying it was necessary to protect retirees in the global financial crisis.

“The country risk (in Argentina) is growing, legal guarantees are decreasing, which is reflected by the selling (of shares) of companies exposed to this country, including blue chip Spanish shares,” said Rafael Rico Ruiz, an analyst at Fortis bank.A Paris fund manager pointed to the financial fragility of certain East European countries, notably Hungary and to a lesser extent Poland, and warnings from Standard and Poor’s on Russia’s debt, that added to investor anxiety regarding “banks with exposure in the region, such as (French bank) Societe Generale.”

Hungary has come under acute pressure as an emerging economy exposed to global financial and recession pressures, with the central bank suddenly raising its key rate by three points to 11.5 per cent in an attempt to shore up the forint on Wednesday.

The IMF announced on Monday it would provide help if needed, an offer that followed 5.0-billion-euro credit from the European Central Bank.

Politicians and analysts here insist that the country is nowhere near bankruptcy, such as threatened Iceland in the last month, and have stressed that the banking sector is stable in Hungary, where 90 per cent of the banks are subsidiaries of foreign institutions.

Referred to as a “second Iceland,” a label vehemently rejected by both the governor of the central bank (MNB) and the finance minister, Hungary has just emerged from two years of severe austerity measures that left it particularly vulnerable to financial turmoil.—AFP