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Keywords:
WEFS; investor confidence; foreign direct investment flow; secondary market; developing country securities; securities exchange
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Abstract

This paper reports the growing number of low-income countries that are making efforts to resolve their debt problems, often aided by the resources of the debt reduction facility for countries of the International Development Association (IDA). Progress for most, however, remains slow. With the backing of IDA resources and assistance from official bilateral sources, debt buy-backs have been concluded by Bolivia, Guyana, Mozambique, Niger, Sao Tome and Principe, Uganda, and Zambia. Preliminary discussions on similar operations are under way with several other countries. Although most of the major baric debt cases have been resolved, attention still needs to be focused on the problems of low-income countries. In many of these countries, the process of debt restructuring has been delayed owing to economic and political difficulties. To maintain market access on reasonable terms, countries need consistently to implement strong macroeconomic and structural policy programs. Maintenance of such programs is likely to be particularly important in the period ahead, given the high degree of uncertainty with regard to interest rate movements in the industrial countries.

© 1995 International Monetary Fund

Charts and Cover Design: IMF Graphics Section

ISBN 1-55775-456-X

ISSN 0258-7440

Prepared by a Staff Team in the Policy Development and Review Department

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Contents

  • Preface

    • I. Overview and Current Issues

      • Progress with Commercial Bank Debt Restructuring

        • Recent Experience

        • Prospects

      • Private Financial Flows

        • Recent Experience

        • Durability of Market Re-Entry and Pricing of Risk

    • II. Commercial Bank Debt Restructuring

      • Overview

      • Recent Bank Packages

      • Debt-Conversion Activity

      • Secondary Market Developments

    • III. Recent Developments in Private Market Financing

      • Bonds

      • Bond Pricing

      • Equities

      • Commercial Bank Lending

      • Other Issues

    • IV. Institutional and Regulatory Framework for Developing Country Financing

      • Reform of Regulatory Structures

      • Expanding the Investor Base

      • Regulatory Harmonization

      • Regulatory Changes in Creditor Countries

        • Securities Markets

        • Provisioning Standards

    • V. Foreign Direct Investment

      • Recent Trends in Direct Investment

      • Behavior of Foreign Direct Investment Transactions in a Crisis

  • Statistical Appendix

  • Bibliography

  • Tables

    • II.

      • 1. Commercial Bank Debt- and Debt-Service-Reduction Operations 1987–July 1994

      • 2. Bank Menu Choices in Debt-Restructuring Packages

      • 3. Buy-Back Equivalent Prices in Debt- and Debt-Service Reduction Operations

      • 4. Debt Conversions

    • III.

      • 5. International Bond Issues by Developing Countries and Regions

      • 6. Credit Ratings of Developing Country Borrowers

      • 7. International Equity Issues by Developing Countries and Regions

      • 8. Terms of Long-Term Bank Credit Commitments

      • 9. Total Returns on Equity in Selected Emerging Market Countries: Before and After Opening to Foreign Investors

      • 10. U.S. Net Purchases of Foreign Equity in Selected Countries: Before and After Opening to Foreign Investors

  • Appendix

    • A1. Chronology of Bank Debt Restructurings and Bank Financial Packages, 1984–July 1994

    • A2. Amounts of Medium- and Long-Term Bank Debt Restructured

    • A3. Terms and Conditions of Bank Debt Restructurings and Financial Packages, July 1989–July 1994

    • A4. Debt and Debt-Service Reduction in Commercial Bank Agreements 1987–July 1994

    • A5. International Bond Issues by Developing Countries and Regions, by Type of Borrower

    • A6. Yield Spread at Launch for Unenhanced Bond Issues by Developing Countries and Regions

    • A7. Maturing Bonds of Developing Countries by Regions

    • A8. International Bond Issues by Developing Countries by Currency of Denomination

    • A9. Enhancements of International Bond Issues by Developing Countries

    • A10. Granger Causality Tests on Daily Data of Brady Par Bond Prices

    • A11. Granger Causality Tests on Daily Data of Sovereign Eurobond Prices

    • A12. Emerging Markets Mutual Funds

    • A13. Net Bond and Equity Purchases by Emerging Markets Mutual Funds

    • A14. Issues of Closed End Funds Targeting Emerging Markets in Developing Countries and Regions

    • A15. Bank Credit Commitments by Country or Region of Destination

    • A16. Terms on Syndicated Bank Credits for Selected Developing Countries and Regions

    • A17. Correlation Among Total Returns on Bonds for Selected Countries

    • A18. Correlation Among Secondary Market Prices of Brady Bonds

    • A19. Correlation Among Total Returns on Equity for Selected Countries

    • A20. Provisioning Regulations Against Claims on Developing Countries

    • A21. Net Foreign Direct Investment Flows to Developing Countries

  • Charts

    • I.

      • 1. Selected Developments in Secondary Market Prices During Negotiations of Bank Restructuring Packages

      • 2. Maturing Bonds of Developing Countries

    • II.

      • 3. Secondary Market Prices of Bank Claims on Selected Countries

    • III.

      • 4. Private Market Financing to Developing Countries

      • 5. Yield Spreads at Launch for Unenhanced Bond Issues by Developing Countries

      • 6. Secondary Market Yield Spreads on U.S. Dollar Denominated Bonds by Selected Developing Countries

      • 7. Comparison of Yields of Sovereign Bonds to Yields on U.S. Corporate Bonds

      • 8. Comparison of Sovereign Bond Spreads

      • 9. Comparison of Movements in Spreads and Economic Variables for Mexico and Venezuela

      • 10. Comparison of Movements in Spreads and Economic Variables for Hungary and Turkey

      • 11. Emerging Market Mutual Funds

      • 12. Share Price Indices for Selected Markets in Latin America

      • 13. Share Price Indices for Selected Markets in Asia

      • 14. Weekly Volatility of Total Returns on Bonds and Equities for Selected Countries

    • V.

      • 15. Net Foreign Direct Investment to Developing Countries

      • 16. Composition of Net Private Capital Flows

The following symbols have been used throughout this paper:

… to indicate that data are not available.

— to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;

– between years or months (e.g., 1992–93 or January-June) to indicate the years or months covered, including the beginning and ending years or months;

/ between years (e.g., 1992/93) to indicate a crop or fiscal (financial) year.

“Billion” means a thousand million.

Minor discrepancies between constituent figures and totals are due to rounding.

The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.

Preface

This study was prepared in the Policy Development and Review Department of the International Monetary Fund, under the direction of Steven Dunaway, Chief of the Debt and Program Financing Issues Division, with Robert Rennhack, Deputy Chief of the division. Its authors are Brian Aitken, George Anayiotos, David Andrews, Jahangir Aziz, Juan Jose Fernandez-Ansola, Shogo Ishii, Thomas Laursen, Paul Mylonas, Susan Prowse, and Alejandro Santos, economists in the division; Anne Jansen, research officer in the division; and Jolanda Heemskerk, an intern at the IMF during the summer of 1994. The study updates information and analyses contained in Private Market Financing for Developing Countries, World Economic and Financial Surveys (Washington: IMF, December 1993).

The work benefited from comments by staff in other departments of the IMF and by members of the Executive Board. Opinions expressed, however, are those of the authors and do not necessarily represent the view of the IMF or its Executive Directors. The study was completed in October 1994 and reflects developments to that time.

Louis Pauly prepared the text for publication. The authors are also grateful to Delrene Alvis, Lucia Buono, Ida Jenkins, and Anne-Barbara Hyde for their valuable word-processing services. Juanita Roushdy of the External Relations Department, gave the manuscript a final edit and coordinated production.

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Cover Private Market Financing
Private Market Financing
ISBN:
9781451940152
ISSN:
0258-7440
Publication Date:
01 Jan 1995
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781451940152.083
Pages:
91

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