The document discusses how emerging markets are facing difficulties due to changes in the global economy. It notes an increase in emerging market bond spreads and drying up of portfolio flows as funds available to emerging markets have decreased. Reasons given include the bursting of the Nasdaq bubble, geopolitical risks, and loss of investor confidence from accounting scandals. While emerging market policies have been flexible, growth remains well below potential with no signs of help from Europe, Japan or internal emerging market factors like Argentina and Brazil. The document concludes that something is different now for emerging markets, with exchange rate flexibility and selectivity becoming more important.

1. EM and the World Economy: Something is Different this Time Visit to the Central Bank of Peru Leonardo Leiderman October 17, 2002

2. Flight to Quality – Increased Risk Aversion

3. An increase of EM and High Yield Bond Spreads

4. Portfolio Flows are Drying Up

5. Capital Flows Did Not Recover From the 1997-98 Crisis

6. Funds Available to Emerging Markets Have Dried Up

7. Reasons: Burst of Nasdaq Bubble. Geopolitical risks. Loss of investor’s confidence (corporate accounting scandals). A doubtful US recovery.

8. A Reflection of Fundamental Problems

9. Policy is in Place and Has Been Flexible

10. The Fiscal Stance has Gone From Surplus to Deficit

11. Growth is Well Below Potential

12. Is There Any Hope From Europe and Japan?

13. EM: Adverse Conditions in 2002… Flight to quality. Anemic world growth Commodity prices. … With No Help From Internal EM Factors: Argentina Brazil Rest of LATAM Turkey

14. The Majority of Non-Oil Commodity Prices Remain Depressed

15. EM: Something is Different Now—Exchange Rate Flexibility…

16. EM: Something Else is Different This Time-SELECTIVITY

17. Selectivity Applies to the Real Sector (Growth) As Well

18. EM and the World Economy: Something is Different this Time Visit to the Central Bank of Peru Leonardo Leiderman October 17, 2002