The Way to Paradise? Emerging Debt Markets at the Beginning of the XXI th Century

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)


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 …


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


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

)

.



7

Countries have made considerable Countries have made considerable progress to keep indebtedness at progress to keep indebtedness at

sustainable levels …sustainable levels …


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


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...


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


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




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


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


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


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


0

100

200

300

400

500

600

Brazil India Mexico Chile Colombia Argentina Peru

Bil

lion

s of U

S D

oll

ars


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.



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)


Based on: Bank of International Settlements and IMF.Based on: Bank of International Settlements and IMF.

Average Total LAC

2.32.3..

19


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


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


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


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…


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.


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




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).


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


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


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


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


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


0

10

20

30

40

50

60

70

Philippines SouthKorea

China Indonesia Malaysia Thailand

Bil

lions

of U

S D

oll

ars



2. 2.

40


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

The Way to Paradise? Emerging Debt Markets at the Beginning of the XXI th Century

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