(CNN) -- Until now the major focus of investors during the financial crisis has been on the big economies of the U.S., Europe and Asia. However the contagion has now spread to emerging economies in Eastern Europe and South America, where concerns about growth built on cheap credit have ravaged currency and stock values.
Why are emerging markets now in trouble?
Basically, too much easy money. Like the big economies of the U.S. and Europe, Ukraine, Latvia and Hungary have been living the high life on cheap flow of cash that, up until a year ago, was washing its way around the world.
Encouraged to embrace the free market by their larger counterparts, they are now in an even worse position as they do not have the currency reserves to refloat their financial systems.
Soaring foreign investment has left them with large current account deficits, hefty foreign debts and some banks have already toppled. Add in rampant inflation, falling currency and property values and a fall in demand for their major exports -- Ukraine is a large steel producer -- resulting in higher unemployment and the picture is very bleak.
"Ukraine has been exposed as the most vulnerable," said Jan Randolph, an emerging markets analyst at Global Insight.
Poland will suffer, but should be much less affected as it has lower levels of debt and inflation and steadier growth.
Similar to emerging Eastern European economies, South Korea has seen its currency and sharemarket pummeled.
However, it is on a much better footing. Its banks are better capitalized, companies less indebted, its growth rate is comparatively steady and it has good foreign exchange reserves. Watch more on market turmoil »
In South America, Argentina, which has suffered prolonged periods of economic turmoil, looks the most vulnerable.
After overspending, the government finds itself short of cash and unable to raise more money to meet its commitments at anything but extortionate rates. Moreover, prices for its major exports -- farm products -- are in free fall, cutting tax revenues by $2.7 billion.
What are their options?
It's time to get the begging bowl out. Many countries, unable to raise money internationally because of their falling credit ratings and plunging currencies, will need help from the IMF or neighbors with more cash on hand.
Ukraine and Hungary are already negotiating with the IMF over multi-billion dollar rescue packages to help shore up their banking sectors and get credit flowing through their economies again.
However, Ukraine, which is seeking $14 billion from the IMF, needs to raise up to $66 billion by next year to roll over short-term loans, pay interest on other debts and finance the rest of its current-account deficit.
"This will hurt," said Olena Bilan, a a macroeconomic analyst with Dragon Capital investment bank. "It will be painful in any case. The question [is] how painful it will be."
Hungary has already received $6.7 billion from the European Central Bank.
Argentina has decided a cash grab is the best idea, nationalizing the country's $30 billion pension fund.
It would free up to $400 million a year to help meet the country's public debt but risks leaving Argentines out of pocket for generations.
South Korea has followed the example of the big European economies, announcing a $130 billion rescue package for banks and the building sector. It should be enough.
Is there anything else to worry about?
You bet. The political situation in some of the countries is less than favorable. In Ukraine, the long-running power struggle between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko has threatened the chance of an agreement with the IMF.
Argentina's pension move as already resulted in angry protests outside the presidential palace. Watch protesters in Argentina »
Moreover, as demand falls worldwide, and the price of the commodities the countries rely on for foreign exchange earnings continue to slide, unemployment will surge, tax receipts will fall, and debt repayments will continue to boom. The hangover could be very prolonged.
Is there any hope?
Are you a glass half-full or -empty person? In Eastern Europe and Argentina the best case scenario is probably cuts in government spending and lower output, while loans are repaid. The worst case is debt restructuring, dependence on IMF funding, complete currency collapse, depression and the possibility of political upheaval. Pass the headache pills.
Poland and South Korea will see their growth rates drop back but should escape the worst side-effects of the downturn.
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