New Strategies for Emerging Domestic Sovereign Bond Markets in the Global

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

N

u

m

b

er

 o

f 

cr

is

es

 

Industrial Countries

Emerging Markets

 

Source: OECD Development Centre, 2007; Own up-date based on M. Bordo and B. Eichengreen 

(2002); and N. Roubini and B. Setser (2004). 

Note: Recent crisis episodes in the period 1997-2006 include Brazil (1998, 2002), Ecuador (1998), 

Pakistan (1998), Ukraine (1998), Turkey (2000), Argentina (2001) and Uruguay (2001). 

 

 

G

RAPH 

2:

 

S

ERIAL 

D

EFAULTS IN 

D

EVELOPED 

C

OUNTRIES

,

 

1500-2006 

 

0

2

4

6

8

10

12

14

Spain

France

Germany

Portugal

Russia

Nu

m

b

er

 o

f d

ef

a

u

lt

s 

1501-1900

1901-2006

Total

 

Source: OECD Development Centre, 2007; Own up-date based on Reinhart, C., Rogoff, K., and 

M. Sevastano (2003).  

5

Blommestein and Santiso: New Strategies for Emerging Domestic Sovereign Bond Markets

Published by The Berkeley Electronic Press, 2007

---

G

RAPH 

3:

 

S

ERIAL 

D

EFAULTS IN 

D

EVELOPING 

E

CONOMIES

,

 

1500-2006 

 

0

2

4

6

8

10

12

14

Ecuador

Venezuela

Mexico

Brazil

Colombia

Num

b

er

 o

f D

ef

a

ul

ts

 

1501-1900

1901-2006

Total

 

Source: OECD Development Centre, 2007; Own up-date based on Reinhart, C., Rogoff, K., and 

M. Sevastano (2003).  

 

But also the latest emerging markets boom needs to be put in a longer 

historical perspective. Although flows to emerging markets reached in 2006 

record levels with emerging bond prices at all-time highs, this boom is not new. 

During the late nineteenth century, Latin American countries, for example, 

experienced during the first globalisation era massive foreign investment booms. 

A major part of the financial inflows took the form of sovereign debt, with bonds 

being traded in European financial centres. By that time, the market value of 

emerging market debt traded in London was impressive: at the turn of the 20th 

century, in 1905, its value was equivalent to 12 per cent of world GDP. Almost 

hundred years later, in 1999, during the current globalisation era, the total volume 

of emerging market debt traded was a meagre 2.7 per cent of world GDP. The 

recent attractiveness of emerging markets has seen the value of debt trading jump 

to $5500 billion in 2005 (roughly 12 per cent of world GDP), which is simply a 

return to a position already reached 100 years ago during the first globalisation 

era . 

Therefore, even if in nominal terms we are witnessing a strong expansion 

of bond and equity flows towards emerging markets,

8

 this trend pales in 

comparison to the previous globalisation era when one takes the size of 

economies (as measured by GDP) into account. The trade volumes of various 

large emerging markets, relative to GDP, were in 2005 not as remarkable as they 

were a century ago in 1905 (or in 1875). Although for some the levels reached in 

2005 were at historical highs (Brazil for example), for other major emerging 

                                                      

8

 

According to BIS syndicated lending to, and bond issuance by, emerging markets reached 

record highs in 2005, respectively $200 and $ 231 billion (BIS, 2006). 

6

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

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

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markets levels remained well below these highs reached during the first 

globalisation era (Russia and Turkey in particular but also Argentina and Mexico; 

Graph 4).  

G

RAPH 

4

 

T

RADING 

V

OLUMES 

R

ELATIVE TO 

W

ORLD 

GDP