"Which country is most likely to have the next financial crisis?"

From Marginal Revolution:

Sorry people, but Ukraine and Venezuela and Argentina are not eligible for this designation, any more than you can give “Most Likely to Succeed” to LeBron James. Have I mentioned lately that emerging market corporate debt doubled over the course of 2012-2014? But where exactly is the pot most likely to boil over next?

Here are a few contenders:

1. Brazil
The currency declined nine percent last month, prompting reactions such as:
“It is incredible to see how dauntingly fast things are deteriorating,” Enestor dos Santos, an economist at BBVA, said from Madrid. “It’s been hard to nail down a projection.”

According to some polls, seventy percent of the population favors the impeachment of President Rousseff; political dysfunction adds to the brew and the various scandals only seem to be growing worse. Moody’s has downgraded the country to Baa3, right on the margin of junk. The economy is expected to contract 1.7 percent this year and the current account deficit is coming in higher than forecast. Financial crises are a tradition.

2. Turkey
The country is headed for snap elections, in light of ongoing political instability, while fighting a two-front war and it has a growing current account deficit. Hmm…

That said, the economy grew at 2.4 percent last year, exports are relatively diversified, and I suspect the current dire situation will prove manageable. The Greek and Turkish ten-year yields are now about the same (which country should be happy with that comparison?). On the down side, the country is especially dependent on short-term financing, which can prove volatile.

3. Russia 

What’s to like?

The Russian economy shrank by 4.6 percent in the quarter ending June. Although the media has focused on the stability in Moscow and maybe St. Petersburg, the economic decline in Russian provinces has been much more serious. Debt in Russia’s 83 regions has risen by 100 to 150 percent since 2010. Russia’s economic minister suggested that possibly 60 of those 83 regions are in crisis mode, and 20 may have already been defaulting on their debt.

The economy still hasn’t recovered from the 2008-2009 crisis, and it doesn’t seem the price of oil will be bouncing back anytime soon.

A few days ago Ivan Krastev wrote: “The Kremlin is populated not by mere survivors of the post-Soviet transition but by survivalists, people who think in terms of worst-case scenarios, who believe that the next disaster is just around the corner, who thrive on crises, who are addicted to extraordinary situations and no-rules politics.”

On the bright side, they have $541 billion in reserves. I say that’s overrated when everything else is turning sour....MORE