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Could crises in Turkey and Argentina hurt Asia?

Could crises in Turkey and Argentina hurt Asia?

Economic crises in Turkey and Argentina have led to talk of “contagion” – the danger of financial problems in one country spilling over into others.

Turkey has struggled with a falling currency and worsening relations with the US.

A spiralling crisis in Argentina prompted the government to announce austerity measures and to ask the International Monetary Fund (IMF) for an early release of a $50bn loan.

The sharp falls in the value of Turkey’s lira and Argentina’s peso have led to fears that currencies from South Africa to Russia will follow suit.

In Asia, India’s rupee and Indonesia’s rupiah have already been hit. So should Asian economies be concerned?

Put simply, contagion is a self-fulfilling process, whereby economic problems in one country prompt investors to sell assets in economies with similar risks.

In a globalised world, a crisis in one country can also quickly spread to others through trade links or lending by banks.

That is why a downturn in Turkey or Argentina matters abroad – beyond making holidays there cheaper.