Monday, 7 April 2014

Revisiting original sin

When the first whispers of Fed "tapering" set off a storm in emerging markets last year, there were lots of reasons to think a repeat of the emerging-market crises of the 1990s was not in the offing. Fewer emerging economies had hard currency pegs and more of them had large defensive reserve hoards. But the most important difference was in the borrowing: sovereigns had done less of it, and more of what they owed was denominated in their own currencies. That prevented a turn in market sentiment from setting off a dangerous downward spiral, in which loss of faith in currency valuations shook confidence in governments' ability to service their debt, which fed back into downward pressure on currencies.

This week's Free exchange column looks at recent developments in emerging financial markets and assesses whether the developing world is inching back toward old vulnerabilities.

Governments in emerging markets have mostly remained disciplined...the share of emerging-market government debt issued in foreign markets has continued to drop, from 12% in 2008 to 8% last year. Private firms, however, have been more likely to succumb to temptation.

Emerging-market companies have begun issuing...Continue reading

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