investors questioned president de la rua ’ s proposed spending cuts and other economic measures designed to reduce argentina ’ s ballooning deficit. this package of measures, designed to achieve a zero fiscal deficit, was finally approved by argentina ’ s congress at the end of july 2001 after much debate. fears of a regional crisis in latin america, however, eased when horst kohler, the imf ’ s managing director, this week informed the executive board of the fund that he was prepared to recommend an augmentation of argentina ’ s current stand - by credit facility by approximately us $ 8 billion to about us $ 22 billion. similarly, turkey ’ s economy experienced considerable growth since 1994 but had entered a recession by 1999 as a result of tight fiscal policies and the earlier russian crisis. with high public deficits and a public sector making net payments of external debt after 1994, the pressure grew on turkey ’ s financial markets. the lack of depth of these financial markets and the volatile inflation rate paved the way for sustained high real interest rates. the high real interest rate paid on domestic debt therefore increased the borrowing requirements of the public sector. all this created a vicious circle of debt and interest payments, pushing turkey into an ever more difficult financial position. the deterioration of the public financial balance, the rise in domestic debt due to continued high real interest rates, the acceleration of inflation rates and the continuing economic contraction made it necessary to embark on a medium - term economic austerity programme. this programme was designed to free turkey from high inflation, restore macro - economic fundamentals and address structural weaknesses in the economy. for most of 2000, the government ’ s economic programme made good progress. consumer price inflation declined rapidly from 68. 8 per cent in january 2000 to 33. 4 per cent in february 2001, the lowest level since 1986. gnp growth also accelerated sharply from a contraction of 6. 1 per cent in 1999 to an expansion of 6 per cent in 2000. however, a severe banking crisis in late november 2000 was accompanied by a massive capital outflow. the crisis was triggered by liquidity problems in some medium - sized banks, which had positioned themselves aggressively for continued declines in interest rates. the underlying cause of the crisis, however, appears to be the significant deterioration in the current account and the delays in the privatisation programme which were causing interest rates to rise from september, and more markedly from around mid - november 2000. the severe liquidity squeeze and growing bank distress was accompanied by pressure on overnight

. the adjustment will be that much more severe given the lack of an exchange rate policy lever. an early resolution to the crisis is unlikely because there is a lack of trust at a number of levels. there is a lack of trust in the leadership of the eurozone to take difficult decisions ; there is a lack of trust between countries ; there is a lack of trust of the banking system, and bis central bankers ’ speeches the recent revelations concerning libor fixing and money laundering reinforce that lack of trust ; and there is a lack of trust between banks, as evidenced in the dysfunctional nature of the interbank system in europe. and as austerity measures bite ever deeper, there are limits to how much the electorate can take. ultimately, the situation becomes increasingly economically and politically untenable. as the eurozone crisis impacts increasingly on the rest of the world, it again raises the question that was asked at the beginning of the crisis : can the emerging market economies decouple from the advanced economies? while there seems to be little doubt that the centre of gravity of the global economy is shifting eastwards, and the asian economies as a bloc may be better able to withstand a renewed global downturn given increased intraregional trade, a complete decoupling is unlikely. already a number of institutions have downgraded their emerging market growth forecasts and we have seen slowdowns in asia and latin america, including china, india and brazil. in 2010 brazil recorded an annual growth rate of 7, 5 per cent. in 2011 this had moderated to 2, 7 per cent, and in the first two quarters of this year, annualised growth rates of 0, 8 per cent were recorded. while chinese growth of 7, 6 per cent may seem extremely fast to us, we must bear in mind that it is significantly slower than the levels previously achieved, and further moderation is expected. a recent imf survey viewed the slowdown in china as having been initially self - induced, to correct overheating asset markets, but more recently is due to the effects of the global slowdown. the channels of contagion to emerging markets from the slowdown in the advanced economies are likely to be similar to those experienced in 2008. we have already seen declining emerging market exports and weaker commodity prices, although what happens in china will be an important determinant of the outlook for commodity prices. in general it will be difficult to sustain growth in many emerging markets, particularly those that are non