What began last year as a financial crisis in one country has led to global financial turmoil today. In order to successfully navigate these uncharted waters, U.S. exporters need to develop finance strategies to retain existing customers, and explore new markets here and abroad.

The Dominoes Fall Harder

A decade ago, the currency collapse in a developing country barely would have been felt in the United States or elsewhere. Today, however, the impact has profound consequences.

In 1995, Federal Reserve Chairman Alan Greenspan said that the highly efficient and increasingly sophisticated international financial system “has the capability to rapidly transmit the consequences of errors of judgement in private investment and public policies to all corners of the world at historically unprecedented speed.”

This was exemplified by the Mexican peso crisis, which was ignited on December 20, 1994. What began as a short-term liquidity problem quickly sparked panic and resulted in the fall of investor confidence, followed by a precipitous drop in the Mexican stock market.

Perceiving that the crisis would erupt in other developing countries sharing similar economic and political characteristics, investor fear spread to Brazil and Argentina. As a result, their stock markets also fell, along with those of other developing countries worldwide.

Asian Crisis Fallout Continues

Having surveyed the tornado-like path produced by the Mexican peso crisis, it appears that the Asian crisis, although more severe, is following a similar course.

The financial problems that began in Thailand in 1997 quickly have spread throughout East Asia. They have added to the severe economic difficulties experienced by Japan in recent years, and have put pressure on China to devalue its currency in order to remain globally competitive.

The Indian subcontinent has not been spared. Poor East Asian economic performance has closed export doors for Pakistan, a country experiencing debt problems. India, too, is facing economic difficulties.

The Impact on Russia

Believing that too many eggs in the emerging market basket is risky, many global investors have pulled their money from Russia.

This has resulted in a downturn of the Russian stock market, the devaluation of the ruble, and increased fears of default on foreign debt by the Russian government and domestic banks. These events have compounded the country’s economic troubles caused by the failures of central planning and the dissolution of the Soviet Union.

In an attempt to stabilize the economy, retain existing investment and attract new funds, newly appointed Russian Prime Minister Yevgeny Primakov recently said Russia intends to meet its domestic and foreign debt obligations, and continue with free market reforms, with some modifications.

Although Russia’s economy is relatively small and has minimal impact on capital and trade flows, it has exposed economic vulnerabilities not only in Eastern Europe, but in other corners of the globe, as well.

Latin America and Canada Feel the Pain

The fallout of the Russian crisis is now being felt in Latin America. Venezuela and Brazil’s currencies are under pressure and stock markets throughout that region significantly have decreased in value.

As prices for commodities fall, resulting from lower world growth forecasts, countries rich in natural resources are feeling the pinch. Depressed oil prices are impacting Venezuela and Mexico, which rely heavily on oil export revenue, while Chile and Peru are hurting from the drop in copper prices. And, Argentina is marred from the fall in agricultural prices.

Even the Canadian economy is affected, primarily due to its exposure of forest products, coal and base metals. Other developed countries sharing these difficulties include Australia and New Zealand.

Creative Finance Is Required

Due to the Asian financial crisis, many companies located in impacted countries are finding it difficult to obtain financing for their purchases. In an attempt to continue exporting to these customers or to attract new buyers, U.S. exporters need to offer longer and more flexible terms. In order to limit your risks, consider utilizing export credit insurance or government guarantees.

Explore New Markets

To compensate for declining exports resulting from the financial turmoil, consider tailoring your product to satisfy the needs of new foreign markets.

Sound economic structures in Canada and the European Union should keep the crisis from doing real damage there. Durability derived from newly enacted reforms in Latin America will likely deter severe fallout. Consequently, these export destinations should remain relatively vibrant.

Also, consider domestic markets in which you’re currently not selling. For instance, from 1996 through 2020, the world’s elderly population consisting of those age 65 and over, will rise almost twice as fast as school or working age groups. You may wish to cater to the tastes of this fast-growing U.S. and world market segment.

Carefully Analyze the Opportunities and Risks

With change comes opportunities—and risks. Whichever strategy you choose to pursue, be sure to analyze the short- and long-term ramifications, and balance the potential rewards with the risks.

This article appeared in October 1998. (NB)

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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