Emerging markets countries may be bruised by the global credit, but most developing economies are still far from being dragged into a broader crisis like that of 1997-98.
As world stock markets slumped Thursday on liquidity and credit concerns caused by losses in the US subprime mortgage market, finance ministers and central bankers from Latin American countries stepped in to reassure investors that their economies are much stronger now than in the past.
Citing the region's commodity-based trade surplus, unprecedented levels of foreign exchange reserves, and more developed local markets, Latin American officials tried to convince investors that their countries will weather the crisis.
On Friday the US Federal Reserve was forced cut its discount rate, charged on direct Fed loans to banks, to assist with liquidity problems in the interbank market.
But some analysts still wonder whether developing nations could be hit hard by a global recession, should the credit squeeze spill over into the real economy and slow US economic growth. "You can tell that story, but it is sort of a novel, meaning it has a lot of chapters to get through," said David Rolley, co-head of global fixed income at Loomis Sayles, a Boston-based firm with $115 million in assets under management.
"You have to see a slowdown in the US real economy, a bank credit crunch really affecting Main St - US employment, retail sales, consumer sentiment, if they all deteriorate, then you have a problem," he added.
A global economic slump is unlikely, however, because the nations suffering from the current credit squeeze have greater ability to launch a co-ordinated action to stop the turmoil, said Alfredo Coutinho, senior economist with Moody's Economy.com, an independent research provider owned by Moody's Corporation.
"Even though the magnitude of the US subprime problem might surpass those that caused financial crisis in Asia and Latin America in the past decade, the main difference is that the center of the crisis is now the biggest economy in the world," Coutinho wrote in a research note. "In past episodes, the epicenter was an emerging or developing country, with less capacity to react," he noted.
Rolley, from Loomis Sayles, also pointed to the existence of countervailing global forces to a possible US slowdown, including secular growth stories in China and the Middle East.
"The subprime deleverage does not unhinge any of those scenarios," he said. As long as the crisis remains within international credit markets, sovereign and corporate issuers in developing countries may rely on domestic capital markets to fulfill their financing needs.
"Given the strengthening of domestic capital markets in recent years, Latin American issuers depend less on international capital markets," Standard & Poor's said in a statement. Most issuers in the region have tapped international markets to take advantage of the low prevailing rates for liability management rather than to cover specific refinancing or liquidity needs, according to the ratings agency.
"Consequently, we believe these entities can postpone their international capital market deals until liquidity and credit spreads improve without jeopardising their credit standing," S&P added.