New Strategies for Emerging Domestic Sovereign Bond Markets in the Global

Comparison of recent sovereign debt restructurings

 

Total time in default

0

10

20

30

40

50

60

70

80

90

Argentina Ecuador Pakistan

Russia

Ukraine Uruguay

Mon

th

s of

 d

ef

a

u

lt

   

Participation Rate

0

10

20

30

40

50

60

70

80

90

100

Argentina Ecuador Pakistan

Russia

Ukraine Uruguay

P

er

ce

n

ta

g

e (%

)  

   

 

Source: OECD Development Centre, 2007; Based on A. Porzecanski (2005). 

 

Financial turbulence experienced by Brazil in 2002 was typical of the 

magnitude of the crisis that some countries experienced. The crisis was overcome 

this time without leading to a crash. Around that time most Brazilian external debt 

was indexed to foreign exchange (see on the Brazilian episode Giavazzi, 

Goldfajn, and Herrera, 2005). This is a classical example of “original sin” 

(Eichengreen and Hausmann, 2005) - situation in which emerging markets are 

unable to raise bonds in international markets denominated in their own 

currencies (Graph 7).  

The Brazilian crisis also highlighted the crucial role of political factors, 

the emergence of a left-wing candidate (Lula) being the trigger for the widening 

of Brazilian spreads and the slump of the Real, that led the country to a nearly 

default by the time of the Presidential elections in October 2002 (Santiso, 2006). 

Since the 2002 financial turbulences, Brazil started to reduce foreign currency-

12

Global Economy Journal, Vol. 7 [2007], Iss. 2, Art. 2

http://www.bepress.com/gej/vol7/iss2/2

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linked debt, as part of its new public debt strategy. As a result, the amount of 

fixed-rate bonds increased, reaching close to 30 per cent of marketable liabilities 

by the end of 2005, against 15 per cent in 2000. Progress has also been 

particularly notable in other countries of the region, in particular in Mexico, 

where fixed-rate securities amounted to 40 per cent of the total by the end of 

2005, versus less than 5 per cent in 2000. 

 

G

RAPH 

7:

 

O

RIGINAL 

S

IN IN 

E

MERGING 

M

ARKETS