Reading course: teste – Mestrado Ibmec

Mestrado Profissionalizante em Administração e Economia. Ibmec.

Processo Seletivo 2013.1 (27 de outubro de 2012)


Dream on? The emerging economies cannot blame all their woes on the rest of the world

July 2012

FIFTEEN years ago this month, Thailand at last allowed its currency, the baht, to fall against the dollar, abandoning a long, losing battle with market forces. What followed was a five-year nightmare for emerging markets, as the financial crisis spread to Thailand’s neighbours, then to Russia and Brazil, before eventually claiming Argentina and Uruguay in July 2002.

After the tossing and turning of 1997- 2002, the next decade went like a dream. In 2003 China resumed double-digit growth; India’s economy expanded by 8%, a feat it would surpass in four of the next six years; Brazil’s new president, Luiz Inácio Lula da Silva, appeased the IMF and the bond markets by cutting public debt and achieving the first of five annual current-account surpluses. Goldman Sachs released the first of its 2050 projections (“Dreaming with the BRICs”, its catchy acronym for Brazil, Russia, India and China), suggesting that the big emerging economies would eventually inherit the Earth.

The crisis-hit countries emerged from devaluation, default and distress with low expectations, cheap and flexible currencies, scope to borrow and room to grow. Global capital markets welcomed them back, buying their equities and their bonds, even when denominated in their own currencies. The popular emerging-markets stockmarket index compiled by MSCI rose by over 350% from the end of 2002 to its peak in October 2007.

Rather than spend these capital inflows, emerging economies recycled them. They amassed foreign-exchange reserves as a guarantee against ever again succumbing to a currency crisis or the ministrations of the IMF. Some have even begun to help fund the fight against crises elsewhere.

But after a dream decade, something is amiss. China is now struggling to grow as fast as 8% (its GDP expanded by 7.6% in the year to the second quarter). India, a country that once aspired to double-digit growth, can now only dream of ridding itself of doubledigit inflation. None of the biggest emerging economies stands on the edge of a dramatic financial precipice, like their counterparts in the euro area, or a fiscal cliff, like America’s. But their economic prospects have nonetheless started to head downhill.

Only 15 months ago, the IMF’s forecasters expected Brazil’s economy to grow by over 4% this year. This week their 2012 forecast was just 2.5%.

Some of this slowdown can be blamed on events elsewhere. Europe’s pain, for example, has spread far beyond its immediate neighbours. The European Union remains the biggest foreign market for many emerging economies, buying about 19% of China’s exports and 22% of South Africa’s. Euro-area banks have also begun to sell assets and withdraw lending. They account for about 45% of credit to emerging Europe and a substantial share of trade credit in Asia.

Some of the slowdown was also orchestrated by governments nervous about price pressures or property bubbles. Poland’s central bank raised rates as recently as May to quell inflation, which persists above its 2.5% target. China’s premier, Wen Jiabao, fell into a game of chicken with the country’s 50,000 property developers, waiting for them to cut prices, even as they waited for him to lift restrictions on multiple home purchases. As growth slows, policymakers will ease in response.

But there is more to this story. The slowdown is not simply a demand-side phenomenon, the result of weak exports and past tightening dragging growth below its long-run potential. The underlying rate of sustainable growth may also be less impressive than previously thought. As the IMF pointed out this week, the last decade or so may have “generated overly optimistic expectations about potential growth”.

High commodity prices boosted some emerging economies, such as Brazil, Russia and South Africa. They also flattered emerging-market share prices.

The dream decade was also sweetened by rapid credit growth, according to the fund. The ratio of bank credit to GDP has risen steeply in many emerging economies over the past ten years. From trough to peak, it rose by over 20 percentage points in Brazil, China, the Czech Republic, Hungary, Malaysia, Poland, South Korea, Taiwan and Turkey. It rose almost as far in India and Russia.

In some emerging economies, the upswing began late in the decade. In China, the credit ratio has risen by over 27 points since 2008 alone. In others, it has already ended: in South Africa, Hungary and South Korea, the credit ratio has fallen substantially since the financial crisis.

A rising credit ratio may represent healthy “financial deepening” as the banking system does a better job of capturing household saving and reallocating it to its best use. But it may also reflect a potentially destabilising “financial cycle”, an upswing in credit and other financial variables, which overlays and often outlasts the swings in GDP and inflation that mark conventional business cycles.

The upturn in the financial cycle may flatter growth, as easy credit encourages spending and speculation, boosting the value of collateral and thus easing credit further. This may have lulled emerging economies into thinking they could grow faster than they really can, just as permissive finance helped persuade the rich world that its growth was more stable than was actually the case.

Ninety-nine cred balloons

When credit booms show up in inflation, central banks are typically quick to react. But consumer prices often remain tame, because rising exchange rates and imports fill the gap between expanding domestic demand and supply. That allows the booms to grow dangerously large. Selim Elekdag and Yiqun Wu of the IMF have identified 99 “credit balloons”, episodes of fast credit growth over the past 50 years in rich and emerging economies alike. Of these balloons, 44 popped badly (resulting in a banking crisis, currency crisis or both) and another 13 very badly, with a 9% contraction of GDP on average.

As the financial cycle ebbs and emerging economies slow, must they forget the “dream” of an “emerging century”? Not yet. By 2010, the combined dollar GDP of the BRICs was already about 75% bigger than Goldman Sachs foresaw when it made its original projections seven years earlier. There is therefore a substantial margin for error.

The big emerging economies may never again grow as fast as they did after 2003. But the BRICs scenarios did not assume they all would. In its latest projections, released last year, Goldman Sachs envisioned average growth for the rest of this decade of 5.2% in Brazil, 5.4% in Russia, 6.3% in India and 6.9% in China. It now looks as if Brazil and Russia may fall short of this projection. But China and India can still dream of fulfilling it.


Questão 01) Which of the following best expresses the main idea of the passage?

A) describe and show the real causes of the distresses of the emerging economies after their dream decade

B) clarify the real scope of the BRICs in business environments and restrain their relevance.

C) warn the emerging countries that they should now go through a long period of economic and financial slowdown

D) encourage the emerging countries to become more economically creative and innovative for their own benefit.

E) blame the leaders of the emerging countries for having misjudged their developing capacity within our globalized world


Questão 02) Which of the following statements is neither expressed nor implied in this article?

A) In the period from 2004 to 2010, there were four years during which India’s economy grew more than 8%

B) After 2002, the BRICs accumulated foreign-exchange reserves to be able to negotiate with IMF

C) The period from 2002 to 2012 were the dream years for the BRICs

D) The biggest emerging economies have now a more favorable financial conditions than their euro-area counterparts.

E) Now, the IMF’s expectations about the growth of the Brazilian economy are lower.


Questão 03) The idea that there are now some changes for the worse concerning the emerging economies is present in all the sentences extracted from the text, EXPECT in:

A) “…something is amiss.”

B) “China is now struggling to grow as fast as 8%…”

C) “…their economic prospects have nonetheless started to head downhill.”

D) “The European Union remains the biggest foreign market for many emerging economies…”

E) “Some of this slowdown can be blamed on events elsewhere.”


Questão 04) The author’s intention in this text is to:

A) Initiate a debate.

B) Report and discuss current events

C) Define terms and illustrate their applications.

D) Criticize an approach and suggest an alternative one

E) Discuss and criticize competing theories.


Questão 05) The role of connectives/linking words for reading comprehension is extremely relevant. Mastering their meaning is one of the basic requirements to an overall understanding of the text. The boldfaced item is synonymous with the expression in parentheses in:

A) “Rather than spend these capital inflows, emerging economies recycled them..” – (more than).

B) “But their economic prospects have nonetheless started to head downhill – (so).

C) “As growth slows, policymakers will ease in response.” – (although).

D) “Now, unlike then, bank loans have not outstripped deposits.”– (similar to).

E) “There is therefore a substantial margin for error.” (consequently)


Questão 06) Which of the following statements can be considered as causes for the Bric’s slowdown, according to the text? I. The European crisis was felt far beyond its frontiers. II. European banks’ cut down on lending money III.The help given by the emerging economies to fund the fight against crises elsewhere

A) II only

B) I only

C) II and III only

D) I and II only

E) I, II, and III


Questão 07) According to IMF

A) The dream decade (2003 until 2010) may have created excessively positive growth anticipations.

B) Brazil’s growth rate in 2012 could be expected to reach double-digit or no less than 4%.

C) The emerging countries should help fund the fight against crises elsewhere.

D) The emerging economies should have foreign-exchange reserves as a guarantee against succumbing to a currency crisis.

E) The Fund’s ministrations should only be directed to emerging countries.


Questão 08) Mastering the meaning of the key words is essential to a fairly good understanding of a text. The alternative below contain some of the key words of the article and they are accompanied by “close” synonyms, except for:

A) double-digit growth – a growth rate that can vary from 10 to 99%

B) current-account surpluses – when imports (of goods and services) by the domestic economy are less than exports (of goods and services).

C) stockmarket index – a method of measuring the value of a section of the market, computed from the prices of selected stocks

D) capital inflows – increase in the amount of money available from internal sources for the purchase of external capital assets

E) interest rates – a rate charged or paid for the use of money


Questão 09) The text contains several examples of pronouns used to substitute words that have been mentioned before. In which of the alternatives below the antecedent is NOT correctly pointed out?

A) “… its catchy acronym for Brazil, Russia, India and China…” – Goldman Sachs

B) “The popular emerging-markets stockmarket index compiled by MSCI rose by over 350% from the end of 2002 to its peak in October 2007.” – emerging-markets stockmarket index

C) “They amassed foreign-exchange reserves as a guarantee against ever again succumbing to a currency crisis…” – capital inflows

D) “They account for about 45% of credit to emerging Europe…” – euro-area banks

E) “They also flattered emerging-market share prices.” – High commodity prices


Questão 10) At the end of the article, the author regards the future of the emerging economies in this century:

A) With mild skepticism.

B) Still with some optimism

C) With anxious concern.

D) With cool indifference.

E) With objective detachment.

Questão 11) In “The big emerging economies may never again grow as fast as they did after 2003…”, the fragment “may never again grow” transmits the idea of:

A) minor ability

B) strong necessity

C) considerable possibility

D) severe regulation

E) inevitable advice


Questão 12) Based on the meanings in the text,

A) “…eventually…” (1st paragraph) and occasionally are synonyms.

B) “…appeased…” (2nd paragraph) and calmed are antonyms.

C) “…catchy…” (2nd paragraph) and attentiongetting express contradictory ideas.

D) “…amassed…” (4th paragraph) and spent express similar ideas.

E) “…withdraw lending…” (7th paragraph) can not be substituted by implement lending


Your turn!

Deseja que um professor corrija as atividades que você fez sobre esta lição? Clique no botão a baixo, assim que o pagamento for confirmado você receberá o link para enviar seu material para correção e tirar dúvidas.

Corrija minha lição.


Você pode gostar...

Deixe uma resposta

O seu endereço de e-mail não será publicado. Campos obrigatórios são marcados com *