A combination of high commodity prices, ultra-low interest rates, and ample quantitative easing-driven dollar liquidity led to an unprecedented dollar debt binge in emerging markets over the past several years. This fueled a pan-EM investment cycle that resulted in hundreds of cities being built, the urbanization of hundreds of millions of people, and large increases in production across almost all commodity sectors. Now that the winds have shifted, a substantial amount of the debt that was issued is at risk of deteriorating because of softer demand for commodities, outflows from developed market investors, and broad-based economic malaise across the emerging markets.
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