the way to paradise? emerging debt markets at the beginning of the xxi th century
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The Way to Paradise? Emerging Debt Markets at the Beginning of the XXI th Century. Javier Santiso Chief Development Economist & Deputy Director OECD Development Centre. Banque de France Paris May 29-June 2 2006. 1. A historical perspective. 2. - PowerPoint PPT PresentationTRANSCRIPT
1
The Way to Paradise? The Way to Paradise? Emerging Debt Markets at the Beginning of the XXIEmerging Debt Markets at the Beginning of the XXIthth CenturyCentury
Banque de France
Paris May 29-June 2 2006
Javier SantisoChief Development Economist & Deputy Director
OECD Development Centre
2
11 A historical perspectiveA historical perspective
Some recent improvements in emerging debt marketsSome recent improvements in emerging debt markets22
Post-Argentina Trauma: A Policy ProposalPost-Argentina Trauma: A Policy Proposal33
3
Fasten your seatbelts: Serial defaulters and Fasten your seatbelts: Serial defaulters and crisis crisis
in emerging marketsin emerging markets
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: M. Bordo and B. Eichengreen. “Based on: M. Bordo and B. Eichengreen. “Crises Now and Then: What Lessons from the Last Era of Financial Crises Now and Then: What Lessons from the Last Era of Financial Globalization”, 2002. and Globalization”, 2002. and N. Roubini and B. Setser. “N. Roubini and B. Setser. “Bail-outs or Bail-ins? Responding to Financial Crises in Bail-outs or Bail-ins? Responding to Financial Crises in Emerging Economies”, 2005.Emerging Economies”, 2005.
NoteNote: Recent crisis episodes on the period 1997-2006 include Brazil (1998, 2002), Ecuador (1998), Pakistan (1998), : Recent crisis episodes on the period 1997-2006 include Brazil (1998, 2002), Ecuador (1998), Pakistan (1998), Ukraine (1998), Turkey (2000), Argentina (2001) and Uruguay (2001).Ukraine (1998), Turkey (2000), Argentina (2001) and Uruguay (2001).
Average Emerging marketsAverage Emerging markets
Average Industrial countriesAverage Industrial countries
Number of Crises (Distribution of Markets)
0
10
20
30
40
50
60
70
80
90
100
1880-1913 1919-1939 1945-1971 1973-1997 1997-2006
Num
ber
of cr
ises
.
Industrial Countries
Emerging Markets
Sovereign default in Latin America (1825-1940)
% of time in default 18
20
1835
1850
1865
1880
1895
1910
1925
1940
Argentina
Brazil
Chile
Colombia
Mexico
Peru
Venezuela 17
24
28
39
45
49
57
4
Serial defaults and crises are not a Serial defaults and crises are not a privilege of today’s emerging markets privilege of today’s emerging markets
… …
Serial Defaults by Country (1500-2006)
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: Based on: Reinhart, C., Rogoff, K., and M. Sevastano. “Debt Intolerance”. NBER Working Paper Reinhart, C., Rogoff, K., and M. Sevastano. “Debt Intolerance”. NBER Working Paper 9908, 2003. 9908, 2003.
0
2
4
6
8
10
12
14
Spain France Germany Portugal Russia
Num
ber
of d
efau
lts
.
1501-1900
1901-2006
Total
0
2
4
6
8
10
12
14
Ecuador Venezuela Mexico Brazil Colombia
Num
ber
of D
efau
lts
.
1501-1900
1901-2006
Total
5
Volumes of traded emerging markets debt Volumes of traded emerging markets debt are are
not as stunning …not as stunning …
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: Mauro, P., Sussman, N. and Y. Yafeh. “Emerging Markets and Financial Globalization”, Based on: Mauro, P., Sussman, N. and Y. Yafeh. “Emerging Markets and Financial Globalization”, 2002, 2006 and Bank of International Settlements, 20062002, 2006 and Bank of International Settlements, 2006..
Trading Volumes Relative to World GDP
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Argentina Brazil Mexico Russia Turkey
Volu
me
of tr
aded
bon
ds
to w
orl
d G
DP
)
. 1875 1905 2000 2005
6
Currently, financial integration is not at Currently, financial integration is not at its highest levelits highest level
Source: OECD Development Centre, 2006.
Based on Schularick 2006 and GDP figures from Maddison (1995, 2001)), Woodruff (1966) and Wilkins (1989) for 1913/14.
Average 1913 Average 1913 Average 2000 Average 2000
OECD Countries
0
1
2
3
4
5
6
7
8
9
UnitedKingdom
Germany France United States Japan Turkey
Inte
grat
ion
Inde
x (0
-10)
.
Integration Index 1913
Integration Index 2000
Note: Financial Integration Index calculated as the ratio between the
share of international investments and the share of world GDP.
International Financial Integration Index
Non- OECD countries
0
1
2
3
4
5
6
7
8
9
Brazil Argentina Chile Russia India China
Inte
grat
ion
Inde
x (0
-10
)
.
Integration Index 1913
Integration Index 2000
7
Countries have made considerable Countries have made considerable progress to keep indebtedness at progress to keep indebtedness at
sustainable levels …sustainable levels …
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: Based on: Dany Jaimovich and Ugo Panizza. “Public Debt around the World: A New Dataset of Dany Jaimovich and Ugo Panizza. “Public Debt around the World: A New Dataset of Central Government Debt”. Inter-American Development Bank. March 2006.Central Government Debt”. Inter-American Development Bank. March 2006.
Total External Debt over GDP
Mexico
0
20
40
60
80
100
120
140
160
1998
1999
2000
2001
2002
2003
2004
2005
Per
centa
ge o
f G
DP
Chile
0
20
40
60
80
100
120
140
160
1998
1999
2000
2001
2002
2003
2004
2005
Per
centa
ge o
f G
DP
Brazil
0
20
40
60
80
100
120
140
160
1998
1999
2000
2001
2002
2003
2004
2005
Per
centa
ge o
f G
DP
Colombia
0
20
40
60
80
100
120
140
160
1998
1999
2000
2001
2002
2003
2004
2005
Per
centa
ge o
f G
DP
8
… … but more efforts are needed to but more efforts are needed to reduce well-known vulnerabilities reduce well-known vulnerabilities
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: Based on: Dany Jaimovich and Ugo Panizza. “Public Debt around the World: A New Dataset of Dany Jaimovich and Ugo Panizza. “Public Debt around the World: A New Dataset of Central Government Debt”. Inter-American Development Bank. March 2006.Central Government Debt”. Inter-American Development Bank. March 2006.
Total External Debt over GDP
Peru
0
20
40
60
80
100
120
140
160
1998
1999
2000
2001
2002
2003
2004
2005
Per
centa
ge o
f G
DP
Venezuela
0
20
40
60
80
100
120
140
160
1998
1999
2000
2001
2002
2003
2004
2005
Per
centa
ge o
f G
DP
Argentina
0
20
40
60
80
100
120
140
160
1998
1999
2000
2001
2002
2003
2004
2005
Per
centa
ge o
f G
DP
Uruguay
0
20
40
60
80
100
120
140
160
1998
1999
2000
2001
2002
2003
2004
2005
Per
centa
ge o
f G
DP
9
Total Domestic Sovereign Debt (% of GDP)
External vs Domestic Sovereign Debt
0
5
10
15
20
25
30
35
40
45
50
1998 1999 2000 2001 2002 2003 2004P 2005E 2006E
Per
centa
ge o
f GD
P
,
Latin America
Total Emerging Markets
Source: OECD Development Centre, 2006Source: OECD Development Centre, 2006
Based on: International Financial Statistics, IMFBased on: International Financial Statistics, IMF
Total External Sovereign Debt (% of GDP)
Total External Sovereign Debt
0
5
10
15
20
25
30
35
40
45
50
1998 1999 2000 2001 2002 2003 2004P 2005E 2006E
Perc
enta
ge o
f GD
P
,
Latin America Emerging Europe
Emerging Asia Total Emerging Markets
Other emerging markets made improvements, Other emerging markets made improvements, becoming less dependent on external becoming less dependent on external
sources…sources…
External and domestic debt (Latin America)External and domestic debt (Latin America)
External and domestic debt (World)External and domestic debt (World)
10
However, the failure to However, the failure to boost internal boost internal savings rates is persistent in Latin savings rates is persistent in Latin
America...America...
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on Global Development Finance, The World Bank, 2005. FIAP, 2005.Based on Global Development Finance, The World Bank, 2005. FIAP, 2005.
5
10
15
20
25
30
35
40
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Net
nat
ion
al s
avin
gs (%
of G
DP)
.
East Asia & Pacific Latin America & Caribbean
South Asia World
Pension Assets under managementEvolution of Regional Saving Rates
0
10
20
30
40
50
60
70
80
Chile Bolivia Brasil Salvador Uruguay Argentina Peru
% o
f GD
P
.
11
……making the region still dependent on making the region still dependent on foreign capitalforeign capital
Regional averageRegional average
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on Global Development Finance, The World Bank, 2005.Based on Global Development Finance, The World Bank, 2005.
0
5
10
15
20
25
30
35
40
Venezuela Chile Mexico Peru Brazil Argentina Colombia
Net
nat
ion
al s
avin
gs
(% o
f G
NI)
.
0
5
10
15
20
25
30
35
40
Singapore China Malaysia Thailand Indonesia IndiaN
et n
atio
nal
sav
ings
(%
of G
NI)
.
Net National savings by country (1996-2005)
12
11 A historical perspectiveA historical perspective
Some recent improvements in emerging debt marketsSome recent improvements in emerging debt markets22
Post-Argentina Trauma: A Policy ProposalPost-Argentina Trauma: A Policy Proposal33
13
Endogenous insurance mechanisms Endogenous insurance mechanisms have been developed in recent yearshave been developed in recent years
Latin America
0
50
100
150
200
250
Mexico Brazil Argentina Venezuela Chile Colombia Peru Ecuador
Bil
lion
s of
US
$
2000
2005
Asia
0
50
100
150
200
250
Taiwan Korea India Malaysia Thailand Indonesia Philippines
Bil
lion
s of
US
$ 2000
2005
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: International Financial Statistics, IMF and Central Banks information.Based on: International Financial Statistics, IMF and Central Banks information.
Foreign Exchange Reserves by Region
2.12.1..
14
These mechanisms continue to These mechanisms continue to consolidate even after recent consolidate even after recent
repayments repayments
20%
30%
40%
50%
60%
70%
80%
90%
Pre-Repayment Post-Repayment
Pre-Repayment Post-Repayment
Ar g
en
t in
aB
r az i
l
(International Reserves in % of Public Sector Borrowing Requirements +Monetary Base)
International Reserves
-40%
5%
10%
15%
20%
25%
30%
35%
-35%
8,000
13,000
18,000
23,000
28,000
Oct-
02
Dec-0
2
Feb
-03
Ap
r-03
Jul-
03
Sep
-03
Nov-
03
Feb
-04
Ap
r-04
Jun
-04
Au
g-0
4
Nov-
04
Jan
-05
Mar-
05
Jun
-05
Au
g-0
5
Oct-
05
Jan
-06
Mar-
06
28,078
21,769
Pre-IMF Repayment
Post-IMF Repayment
35000
40000
45000
50000
55000
60000
65000
Oct-
02
Dec-0
2
Feb
-03
Ap
r-03
Jul-
03
Sep
-03
Nov-
03
Feb
-04
Ap
r-04
Jun
-04
Au
g-0
4
Nov-
04
Jan
-05
Mar-
05
Jun
-05
Au
g-0
5
Oct-
05
Jan
-06
Mar-
06
67,935
60,090
Pre-IMF Repayment
Post-IMF Repayment
Liquidity Ratio
Repayment:9.5 bn
Repayment:15.6 bn
2.12.1..
Source: OECD Development Centre, 2006 and Intern. Financial Statistics, IMF, 2006Source: OECD Development Centre, 2006 and Intern. Financial Statistics, IMF, 2006
15
New instruments have been increasingly New instruments have been increasingly used for sovereign bonds issuanceused for sovereign bonds issuance
Emerging Markets Sovereign Bonds Issuance
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: Global Financial Stability Report, IMF 2006, Dealogic and TurBased on: Global Financial Stability Report, IMF 2006, Dealogic and Turéganoégano and Santiso, 2005. and Santiso, 2005.
Number if issues
0
10
20
30
40
50
60
70
80
90
100
2002 2003 2004 2005 2006-Q1
Nu
mber
of is
sues
With CACs Without CACs Total
28%
63%
91%
97%
100%
Volume of transactions
0
10
20
30
40
50
60
70
80
90
2002 2003 2004 2005 2006-Q1
Bil
lions
of U
S d
oll
ars
With CACs Without CACs Total
21%
65%
92%
98%
100%
2.22.2
Bil
lion
s of
US
doll
ars
Nu
mb
er
of
issu
es
16
Despite the slackening in recent years, Despite the slackening in recent years, corporate issuers are increasingly corporate issuers are increasingly
importantimportant
Latin America (2005)
0
5
10
15
20
25
30
Mexico Brazil Chile Argentina Colombia Venezuela
Billions
of U
S D
ollars
Asia and Pacific (2005)
0
5
10
15
20
25
30
SouthKorea
India Malaysia Philippines Thailand China
Bil
lions
of U
S D
oll
ars
0
10
20
30
40
50
60
70
80
19
93-
09
1995-
03
1996-0
9
1998-0
3
1999-0
9
2001-
03
2002-
09
2004-0
3
2005-
09
Bil
lions
of U
S D
oll
ars
Africa & Middle East
Latin America & Caribbean
Asia & Pacific
International Debt Securities by Nationality of Issuer Corporate Issuers – Amounts outstanding
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on Bank of International Settlements, 2006.Based on Bank of International Settlements, 2006.
2.22.2..
17
Latin American governments have Latin American governments have increased increased
the size of their domestic bond markets the size of their domestic bond markets
Latin America (2005)
0
100
200
300
400
500
600
Brazil India Mexico Chile Colombia Argentina Peru
Bil
lion
s of U
S D
oll
ars
Asia and Pacific (2005)
0
100
200
300
400
500
600
700
SouthKorea
China Malaysia Thailand Singapore Indonesia Philippines
Bil
lion
s of U
S D
oll
ars
0
200
400
600
800
1000
1200
1400
1600
180019
89
1991
1993
1994-0
6
1994-1
2
1995-
06
1995-
12
1996-0
6
1996-1
2
1997-
06
1997-
12
1998-0
6
1998-1
2
1999-0
6
1999-1
2
2000-0
6
2000-1
2
2001-
06
2001-
12
2002-
06
2002-
12
2003-
06
2003-
12
2004-0
6
2004-1
2
2005-
06
Bil
lions
of U
S D
oll
ars
Latin America (7 biggest issuers)
Emerging Asia (7 biggest issuers)
Domestic Debt SecuritiesAll Issuers – Amounts outstanding
2.3. 2.3.
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on Bank of International Settlements, 2006.Based on Bank of International Settlements, 2006.
18
Domestic debt markets are Domestic debt markets are comparatively shallow and there is room comparatively shallow and there is room
for further expansionfor further expansion
Latin America
0
10
20
30
40
50
60
70
80
90
Brazil Chile Colombia Mexico Argentina Peru
% o
f GD
P .
Government
Total
Other markets
0
10
20
30
40
50
60
70
80
90
Korea CzechRepublic
SouthAfrica
Philippines Indonesia
% o
f GD
P .
Government
Total
Average Total
Size of Local Debt Securities Markets(amounts outstanding)
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: Bank of International Settlements and IMF.Based on: Bank of International Settlements and IMF.
Average Total LAC
2.32.3..
19
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on Bank of International Settlements, 2006 and JP Morgan Emerging-Market Bond Index (April 2006).Based on Bank of International Settlements, 2006 and JP Morgan Emerging-Market Bond Index (April 2006).
International Bonds and Notes by CurrencyAmounts outstanding
2.32.3. .
Mexican Peso
0
0.5
1
1.5
2
2.5
3
3.5
4
19
93-0
9
1994-0
9
1995-0
9
1996-0
9
1997-0
9
1998-0
9
1999-0
9
2000-0
9
2001-
09
2002-0
9
2003-0
9
2004-0
9
2005-0
9
Bil
lions o
f U
S D
oll
ars .
Colombian Peso
0
0.5
1
1.5
2
2.5
3
3.5
4
19
93-0
9
1994-0
9
1995-0
9
1996-0
9
1997-0
9
1998-0
9
1999-0
9
2000-0
9
2001-
09
2002-0
9
2003-0
9
2004-0
9
2005-0
9
Bil
lions o
f U
S D
oll
ars .
Total Return in Emerging Market Bond Indexes
Issuance of local-currency bonds is on Issuance of local-currency bonds is on the the
rise, outperforming US dollar bonds…rise, outperforming US dollar bonds…
0
5
10
15
20
25
30
35
2002 2003 2004 2005 2006
Retu
rn (%
) .
Emerging Markets
U.S
Bil
lion
s of
US
doll
ars
20
Changes in debt composition, Changes in debt composition, maturities, maturities,
and rate structure have been observedand rate structure have been observedShort Term Domestic Debt
0
10
20
30
40
50
60
70
Brazil Mexico Chile Venezuela India Colombia China Russia
% o
f Tot
al d
omes
tic
deb
t .
1996
2004
Pension Assets under Management in Latin America
0
10
20
30
40
50
60
70
80
Chile Bolivia Brasil ElSalvador
Uruguay Argentina Peru
% o
f GD
P
AsiaAsiaLACLAC
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: Global Financial Stability Report, IMF, 2006.Based on: Global Financial Stability Report, IMF, 2006.
Average Remaining Maturity of Local Currency Fixed Rate Marketable Debt
0
2
4
6
8
10
12
Chile Mexico Colombia Brazil India SouthAfrica
Indonesia
Yea
rs
2003
2005
2.3.2.3.
Foreign Investors' Share in Total Domestic Debt issuance (2004)
05
1015202530354045
Uruguay Mexico Argentina Brazil Peru
%
21
The The original sinoriginal sin was a persistent was a persistent phenomenon in Latin American countries phenomenon in Latin American countries
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: Eichengreen, B. Hausmann, R. and U. Panizza. “Currency Mistmatches, Debt Intolerance Based on: Eichengreen, B. Hausmann, R. and U. Panizza. “Currency Mistmatches, Debt Intolerance and Original Sin. Why they are not the same and why it matters”, NBER Working Paper 10036, and Original Sin. Why they are not the same and why it matters”, NBER Working Paper 10036, 2003.2003.
NoteNote: Original Sin Index is defined as:: Original Sin Index is defined as:
The inability of countries to borrow in their own currency
Measures of original sin by country groupings (average)
0
0.2
0.4
0.6
0.8
1
1.2
LatinAmerica
MiddleEast &Africa
OtherDeveloped
FinancialCenters
Ori
gin
al Sin
Index
1993-1998
1999-2001
2.4.2.4.
Ori
gin
al
Sin
In
dex
0,1i
ii countrybyissuedSecurities
currencyinSecuritiesMaxOSIN
22
Original sin Original sin has been overcome has been overcome through the promotion of domestic through the promotion of domestic
financial marketsfinancial markets
Estimated domestic original sin (end of period)
0
0.2
0.4
0.6
0.8
1
1.2
Venezuela Brazil Chile Colombia Mexico Peru
Ori
gina
l Sin
Inde
x
2000
2004
Ratio of domestic debt securities to nominal GDP (Amounts outstanding)
0
10
20
30
40
50
60
1994 1996 1998 2000 2002 2004%
of G
DP
Latin America Asia
Middle East and Africa All Emerging Economis
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: Mehl, A. and J. Reynaud. “The Determinants of Domestic Original Sin”. European Central Based on: Mehl, A. and J. Reynaud. “The Determinants of Domestic Original Sin”. European Central Bank Working Paper No. 560, Dec. 2005.Bank Working Paper No. 560, Dec. 2005.
2.4.2.4.O
rigin
al
Sin
In
dex
% o
f G
DP
23
Credit worthiness and higher access to Credit worthiness and higher access to capital can be reached through capital can be reached through
remittances…remittances…
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: “Economic Implications of Remittances and Migration”. World Bank, 2006.Based on: “Economic Implications of Remittances and Migration”. World Bank, 2006.
2.5.2.5.
Indebtedness Classification according to Remittances
0
100
200
300
400
500
Argentina Peru Brazil Colombia Ecuador Chile Venezuela Mexico
Deb
t as
% o
f Export
s .
Ratio Debt/ Exports
Ratio Debt/ (Exports + Remittances)
-3.9%
-9.3% -5.5%
-17.2%-24.5%
-3.4%
-3.5%-7.6%
(2004)
24
……which could have a positive effect on which could have a positive effect on sovereign credit ratingssovereign credit ratings
2.5.2.5.
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: Rowland, P. “DBased on: Rowland, P. “Determinants of Spread, Credit Ratings and Creditworthiness for Emerging eterminants of Spread, Credit Ratings and Creditworthiness for Emerging Market Sovereign Debt: A Follow-Up Study Using Pooled Data Analysis”. Banco de la Republica de Market Sovereign Debt: A Follow-Up Study Using Pooled Data Analysis”. Banco de la Republica de Colombia, 2005.Colombia, 2005.
Explanatory Variable Rating Moody's Rating S&PConstant 3.408 -0.524
(1.38) (-0.22)
GDP per capita 1.027 1.458(4.04) (6.05)
GDP growth rate 0.130 0.171(1.54) (2.13)
Inflation rate -0.630 -0.591(-2.70) (-2.67)
Fiscal balance / GDP 0.049 0.097(0.82) (1.71)
Current account balance / GDP 0.006 0.001(0.54) (0.05)
External debt / Exports -0.015 -0.011(-5.36) (-4.24)
Developed country (dummy) 2.957 2.595(4.18) (3.86)
Default since 1970 (dummy) -1.463 -2.622(-2.10) (-3.96)
No. observations 49 49Adjusted R2 0.905 0.926Standard error 1.325 1.257
Note: T-statistics are in parentheses. Parameters estimates that aresignificant at the 5% are indicated in bold.
Dependent Variable
Determinants of Sovereign Credit Ratings
Chile Mexico Brazil Colombia Peru Venezuela Argentina Ecuador
S&P Rating (May 2006)
Potential S&P with Remittances
AAA
AA
A+
A-
BBB
BB+
BB-
B
CCC+
CCC-
C
A
BB
BBB
BB BBBB-
B
CCC+
A+
BB+
BBB+
BB+ BB+BB
B+
B-
Potential Improvements in Credit Rating through Remittances
Rati
ng
(S
&P
)
25
11 A historical perspectiveA historical perspective
Some recent improvements in emerging debt marketsSome recent improvements in emerging debt markets22
Post-Argentina Trauma: A Policy ProposalPost-Argentina Trauma: A Policy Proposal33
26
Considerable efforts for monitoring Considerable efforts for monitoring portfolio flows could have been sparedportfolio flows could have been spared
• In 2000 no systematic databases of portfolio investments were available
• One year spent with a research team of 3 economists to collect microeconomic data
• Three hundred interviews conducted with asset managers, buy- side and sell-side strategists
Source: Palgrave, 2003.
27
100 Largest Emerging Markets Equity Funds, July 2000
Name Assets (USD mios) Ranking
Emerging Markets Growth Fund 22,638 1Capital International Emerging Markets Fund 4,310 2Schroder Emerging Markets Fund 2,781 3Templeton developing Markets Trust 2,733 4Templeton IF Emerging Markets Series 2,424 5Genesis Emerging Markets 2,180 6MSDW IF Emerging Markets Portfolio A 1,417 7SEI Emerging Markets Equity Fund 1,377 8UBS (Ch) Equity Fund Emerging Markets 1,227 9T Rowe Price New Asia Fund 1,205 10Templeton Emerging Markets Investment Trust 1,136 11Mexico Fund 1,105 12Vanguard Emerging Markets Stock Index Fund 1,102 13GMO Emerging Markets Fund III 1,101 14Deutsche GSF Global Emerging Markets Fund A 1,073 15Batterymarch Global Emerging Markets Fund 1,063 16Deutsche Profunds Pacific Fund A 1,007 17Korea Fund 1,002 18
The political economy of emerging The political economy of emerging markets: actors, institutions and crisesmarkets: actors, institutions and crises
Source: Javier Santiso, “The political economy of emerging markets: actors, Source: Javier Santiso, “The political economy of emerging markets: actors, institutions and financial crises in Latin America”. New York, Palgrave, 2003.institutions and financial crises in Latin America”. New York, Palgrave, 2003.
28
Since 2000 new databases have been Since 2000 new databases have been developed with higher update frequencydeveloped with higher update frequency
Net capital flows into Emerging Markets
(USD billions)
-3.000
2.000
7.000
12.000
17.000
22.000
2002 2003 2004 2005 J an/2006
Source: BBVA, Capital Flows, EPFR
-100
-50
0
50
100
150
200
250
300
350
Jan-05 Mar-05 Apr-05 Jun-05 Aug-05 Oct-05 Dec-05 Feb-06
200
225
250
275
300
325
Weekly EMD inflow s/outflow s (US$ mn, 4w k mv g
av g)EMBIG Performing sov ereign spread (bp) (RHS, inv erted scale)
Sources: EPFR, Bloomberg, and Santander Investment.
Source: OECD Development Center, 2006.Source: OECD Development Center, 2006.Based on: http://www.emergingportfolio.com/Based on: http://www.emergingportfolio.com/
29
Back to the Argentinean Debt Default: Back to the Argentinean Debt Default: CIPS+ as a strategic tool?CIPS+ as a strategic tool?
The Argentinean giant debt default has been epic in scale.
It involved 152 varieties of paper denominated in six currencies and governed by eight jurisdictions.
0
10
20
30
40
1999 2000 2001Source: Nieto and Santiso (2006).
Argentina Brazil Mexico Venezuela
Number of sovereign bonds issued before the Argentinean crisis Jurisdictions involved
0
20
40
60
80
100
120
140
Argentina Ecuador Pakistan Russia Ukraine UruguayN
um
ber
juri
sdic
tions
Recent Sovereign Debt Restructurings
20052005 20002000 19991999 1998-1998-20002000
1998-1998-20002000
20032003
Nu
mb
er
of
juri
sdic
tion
s
Nu
mb
er
of
sove
reig
n b
on
ds
30
Back to the Argentinean Debt Default:Back to the Argentinean Debt Default: CIPS+ as a strategic tool? CIPS+ as a strategic tool?
Argentina defaulted on bonds worth $81 billion in December 2001.
It represented the longest period of debt restructuring : no database of Argentinean bondholders is available (Lazard was hired for this purpose).
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on Porzecanski, A. “Based on Porzecanski, A. “From Rogue Creditors to Rogue Debtors: Implications of Argentina’s From Rogue Creditors to Rogue Debtors: Implications of Argentina’s Default”, Default”, 2005.2005.
Recent Sovereign Debt Restructurings
20052005 20002000 19991999 1998-1998-20002000
1998-1998-20002000
20032003
Total time in default
0
10
20
30
40
50
60
70
80
90
Argentina Ecuador Pakistan Russia Ukraine Uruguay
Mon
ths
of d
efau
lt
.
Participation Rate
010
2030
4050
6070
8090
100
Argentina Ecuador Pakistan Russia Ukraine Uruguay
Perc
enta
ge (%
)
.
31
Thank you for Thank you for your attention!your attention!
32
ANNEXANNEX::Three essential challenges for Three essential challenges for
Latin AmericaLatin America
33
Three essential challenges for Latin Three essential challenges for Latin American economies :American economies :
High indebtedness and vulnerabilitiesHigh indebtedness and vulnerabilities
Strong dependence on foreign capitalStrong dependence on foreign capital
Low rates of savings and illiquidityLow rates of savings and illiquidity
11
22
33
34
Source: OECD Development Centre, 2006Source: OECD Development Centre, 2006
Based on IMF, World Bank, National DataBased on IMF, World Bank, National Data
Debt ratios have decreased, but they Debt ratios have decreased, but they remain high with respect to other remain high with respect to other
economies…economies…
AverageAverage
0
100
200
300
400
500
India Indonesia Philippines Thailand Korea China Malaysia
Deb
t as
% o
f Exp
orts
.
1. 1.
0
100
200
300
400
500
Argentina Peru Brazil Colombia Chile Venezuela Mexico
Deb
t as
% o
f Export
s .
Average External debt as a share of exports (1996-2005)
35
Latin American public sector still has Latin American public sector still has important obligationsimportant obligations
Asia
-5
0
5
10
15
20
25
30
35
India Philippines Indonesia Korea China Malaysia Thailand
Per
centa
ge o
f G
DP
. 2000
2005
Eastern Europe
-5
0
5
10
15
20
25
30
35
Turkey Hungary Poland Ukraine Bulgaria Russia
Per
centa
ge o
f G
DP
.
2000
2005
Latin America
-5
0
5
10
15
20
25
30
35
Mexico Brazil Venezuela Chile Colombia Argentina Peru
Percenta
ge o
f G
DP
.
2000
2005
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: International Financial Statistics, IMF and Central Banks information.Based on: International Financial Statistics, IMF and Central Banks information.
Public Sector Borrowing requirementsPSBR measure the financing needs of public, private and social entities that act on the Government's behalf.
1. 1.
36
Three essential challenges for Latin Three essential challenges for Latin American economies :American economies :
11 High indebtedness and vulnerabilitiesHigh indebtedness and vulnerabilities
Strong dependence on foreign capitalStrong dependence on foreign capital22
Low rates of savings and illiquidityLow rates of savings and illiquidity33
37
Latin America’s investment ratios Latin America’s investment ratios remain low and limit growth potentialremain low and limit growth potential
Outwards FDI flows by region
0
10
20
30
40
50
60
70
80
90
1985
1988
1991
1994
1997
2000
2003
Bil
lions
of doll
ars
.
Latin America Asia
Source: International Financial Statistics,IMF and UNCTAD.Source: International Financial Statistics,IMF and UNCTAD.
2. 2.
38
-20,000
0
20,000
40,000
60,000
80,000
100,000
Mar-
97
Sep
-97
Mar-
98
Sep
-98
Mar-
99
Sep
-99
Mar-
00
Sep
-00
Mar-
01
Sep
-01
Mar-
02
Sep
-02
Mar-
03
Sep
-03
Mar-
04
Sep
-04
Mar-
05
Sep
-05
Russian Crisis
Argentinean Crisis
Capital Flows puzzle is a symptom Capital Flows puzzle is a symptom of the region’s exposure to market of the region’s exposure to market
sentimentsentimentCapital Flows to Latin America
Mil
lion
s of
US
Doll
ars
Mar-
06
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on: Latin Focus, 2006.Based on: Latin Focus, 2006.
2. 2.
39
Latin American governments are still Latin American governments are still dependent on international securitiesdependent on international securities
Latin America (2005)
0
10
20
30
40
50
60
70
Argentina Brazil Mexico Venezuela Colombia Chile
Bil
lions
of U
S D
oll
ars
-40
10
60
110
160
210
260
1
993-0
9
19
95-0
3
19
96-0
9
19
98-0
3
19
99-0
9
2001-
03
2002-0
9
2004-0
3
2005-0
9
Bil
lions
of U
S D
oll
ars
Africa & Middle East
Latin America & Caribbean
Asia & Pacific
International Debt Securities by Nationality of Issuer Governments – Amounts outstanding
Asia and Pacific (2005)
0
10
20
30
40
50
60
70
Philippines SouthKorea
China Indonesia Malaysia Thailand
Bil
lions
of U
S D
oll
ars
Source: OECD Development Centre, 2006.Source: OECD Development Centre, 2006.
Based on Bank of International Settlements, 2006.Based on Bank of International Settlements, 2006.
2. 2.
40
Three essential challenges for Latin Three essential challenges for Latin American economies :American economies :
11 High indebtedness and vulnerabilitiesHigh indebtedness and vulnerabilities
Strong dependence on foreign capitalStrong dependence on foreign capital22
Low rates of savings and illiquidityLow rates of savings and illiquidity33