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According to National Bank of Canada analysts, the appreciation of the US dollar makes harder for USD borrowers to pay for its debt, particularly in Turkey and Argentina.  

Key Quotes:

“The dollar’s appreciation this year is concerning in the sense that it can lead to a vicious cycle by making it harder for borrowers to service USD-denominated debt, reinforcing default risks and hence leading to more capital outflows from emerging markets. According to the Bank of International Settlements, USDdenominated debt to non-bank borrowers in emerging markets amounted to US$3.7 trillion at the end of 2017 or 11% of GDP.”

“The problem is more serious in places such as Turkey where USD-denominated debt hit a record US$195 billion at the end of 2017, or a stunning 23% of GDP. With the Turkish Lira plunging more than 60% against the USD this year, defaults and hence a recession in Turkey are becoming increasingly likely. Ditto for Argentina whose peso has also plunged versus the USD this year.”

“Other emerging economies such as Mexico and Indonesia also have high USD-denominated debt, although better current account balances and foreign currency reserves (than say Turkey and Argentina) have so far helped limit the wrath of foreign investors.”