By a Staff Team from the Exchange and Trade Relations and Research Departments

© 1990 International Monetary Fund

Library of Congress Cataloging-in-Publication Data

International capital markets.

(World economics and financial surveys, ISSN 0258-7440)

“April 1990.”

Includes bibliographical references.

1. International finance. 2. Capital market. I. Allen, Mark. II. International Monetary Fund. Exchange and Trade Relations Dept. III. International Monetary Fund. Research Dept. IV. Series.

HG3881.1575226 1990 332.1'5 90-4579

ISBN 9781451941883

Price: US$20.00

(US$15.00 university libraries, faculty members and students)

Address orders to:

External Relations Department, Publication Services

International Monetary Fund, Washington, D.C. 20431

Contents

• Preface

• I. Overview of Developments and Key Issues

  • Financial Market Trends

    • Macroeconomic Background and Capital Flows

    • Developments in Major Market Sectors

    • Transactions with Developing Countries

  • Factors Underlying Developments

    • Integration of Markets

    • Globalization and Investor Behavior

  • Financial Policy Issues

    • Containing Systemic Risk

    • Liberalizing Trade in Financial Services

    • Influence of Taxes on Capital Flows

    • Integration of Developing Countries in International Capital Markets

• II. Recent Developments in International Capital Markets

  • Macroeconomic Environment

  • Capital Flows in Major Industrial Countries

    • United States

    • Japan

    • Federal Republic of Germany

    • United Kingdom

  • International Banking Activity

  • International Bond Markets

  • Derivative Products

  • International Equity Markets

• III. Capital Market Financing for Developing Countries

  • Developing Country Access to International Capital Markets

    • Banks' Claims on Developing Countries

    • Terms

    • Bond Financing

  • Recent Financing Packages

    • Specific Agreements

  • Aspects of Debt Management

    • Debt Conversion Schemes

    • Secondary Market

    • Portfolio Management

    • Trends in Bank Exposure and Balance Sheet Structure

  • Emerging Stock Markets

    • Relative Performance

    • Structural and Institutional Aspects

• IV. Recent Developments in Financial Regulation and Market Structures

  • Regulating the Banking and Securities Industries

    • Capital Adequacy

    • Single European Banking Market

    • Restructuring the U.S. Thrift Industry

    • Separation of Functions

  • Reforming Market Structures

    • Financial Instruments

    • Foreign Participation

    • Market Liberalization

    • Market Safeguards

    • Investor Protection

• V. Regulatory, Accounting, and Tax Treatment of Sovereign Lending and Debt Reduction

  • Provisions Against Existing Claims

  • New Financing

  • Debt Reduction

    • Debt Buy-Backs

    • Debt Exchanges

    • Debt-Equity Conversions

  • Policy Issues

    • Provisioning Policy

    • Accounting and Regulatory Treatment of Debt Exchanges

    • Tax Policy

• VI. The Effect of Taxes on Capital Flows

  • Taxes and Net Capital Flows

  • Taxes and Gross Capital Flows

    • Portfolio Composition

    • Location of Market Activity

• VII. Negotiations of Trade and Investment in Financial Services

  • International Collaboration on Financial Market Issues

  • Services in the Context of Multilateral Trade Talks

• Appendices

  • I. Classification of Countries

  • II. Statistical Tables

• TABLES

• Section

• I.

  • 1. Selected Economic Indicators, 1982–89

  • 2. United States, Japan, Federal Republic of Germany, United Kingdom: Capital Accounts, 1987–89

  • 3. Changes in Cross-Border Bank Claims and Liabilities, 1983–Third Quarter, 1989

• II.

  • 4. Developments in International Bond Markets, 1982–89

  • 5. Outstanding Swap Transactions by Currencies, 1987–88

  • 6. Equity Markets: Secondary Trading Values and Volumes, 1979–88

• III.

  • 7. International Lending, 1981–Third Quarter 1989

  • 8. Chronology of Bank Debt Restructurings and Bank Financial Packages, 1983–89

  • 9. Debt Conversions, 1984–89

  • 10. U.S. Banks' Developing Country Claims Relative to Capital, 1980–Third Quarter 1989

  • 11. Indicators of Size for Emerging and Developed Stock Markets

• IV.

  • 12. Capital/Asset Ratios of Banks in Selected Industrial Countries, 1980–88

  • 13. Circuit Breakers in Major U.S. Markets

• V.

  • 14. Commercial Bank Provisioning Against Claims on Developing Countries

  • 15. Regulatory, Accounting, and Tax Treatment of the Mexico-Morgan Debt Exchange

• Appendix

• II.

  • A1. Exchange Rate Volatility of Major Currencies with Respect to the U.S. Dollar, 1984–89

  • A2. Long-Term Less Short-Term Interest Rates in Major Industrial Countries, 1983–89

  • A3. Long-Term and Short-Term Interest Rate Differentials Between the United States and Other Major Countries

  • A4. United States: External Capital Flows, 1986–Third Quarter 1989

  • A5. Japan: External Capital Flows, 1986–Second Quarter 1989

  • A6. Federal Republic of Germany: External Capital Flows, 1986–Third Quarter 1989

  • A7. United Kingdom: External Capital Flows, 1986–Third Quarter 1989

  • A8. Change in Interbank Claims and Liabilities, 1983–Third Quarter 1989.

  • A9. Change in Claims on Nonbanks and Liabilities to Nonbanks, 1983–Third Quarter 1989

  • A10. Long-Term Bank Credit Commitments, 1983–89

  • A11. Gross International Bond Issues and Placements by Groups of Borrowers, 1985–89

  • A12. Early Repayments of International Bonds, 1985–89

  • A13. Borrowing on International Markets by Major Instruments, 1985–89

  • A14. Market for Fixed Rate Bonds, 1985–89

  • A15. Market for Floating Rate Issues, 1985–89

  • A16. Market for Equity-Related Bonds, 1985–89

  • A17. International Facilities by Category of Instrument, 1985–89

  • A18. Financial Futures and Options: Exchanges, Contracts, and Volume of Contracts Traded, 1986–October 1989

  • A19. International Equity Market—Primary Issues, 1984–88

  • A20. Gross International Equity Flows, 1986–First Quarter 1989

  • A21. Cross-Border Mergers and Acquisitions, 1988

  • A22. Long-Term Bank Credit Commitments to Developing Countries, 1983–89

  • A23. Change in Cross-Border Bank Claims on Developing Countries and Areas, 1983–Third Quarter 1989

  • A24. Average Spreads on Bank Financial Packages for Developing Countries, 1983–89

  • A25. Terms of Long-Term Bank Credit Commitments, 1984–89

  • A26. International Bond Issues by Developing Countries, 1983–89

  • A27. Terms and Conditions of Bank Debt Restructurings and Financial Packages, 1987–89

  • A28. Amounts of Medium- and Long-Term Bank Debt Restructured, 1983–89

  • A29. Concerted Lending: Commitments and Disbursements, 1984–89

  • A30. Concerted Short-Term Facilities Outstanding at End of Period, 1984–89

  • A31. Financing Instruments and Options in New Money Packages and Restructurings of Bank Debt for Selected Developing Countries, 1983–89

  • A32. Debt and Debt Service Reduction in Commercial Bank Agreements, 1987–89

  • A33. Features of Selected Debt Conversion Schemes

  • A34. Change in U.S. and U.K. Bank Claims on Developing Countries, 1984–89

  • A35. German Banks' Lending to Developing Countries, 1985–First Half 1989

  • A36. IFC Total Return Indices for Emerging Stock Markets

  • A37. Accounting and Regulatory Treatment of Interest Arrears on Sovereign Claims

• CHARTS

• Section

• I.

  • 1. Currency Composition of International Bond Issues, 1984–89

• II.

  • 2. Five Major Industrial Countries' Nominal Interest Rates, January 1982–December 1989

  • 3. Growth Rate of International Bank Claims, 1976–Third Quarter 1989

  • 4. International Bond Issues by Groups of Borrowers, 1984–89

  • 5. International Bond Issues by Major Instruments, 1984–89

• III.

  • 6. Bond Issues and Long-Term Commitments of Credits and Facilities to Capital Importing Developing Countries, 1981–89

  • 7. Terms of International Bank Lending Commitments, 1977–89

  • 8. Secondary Market Prices for Developing Country Loans

  • 9. Selected Balance Sheet Data for U.S. Banks, 1978–Third Quarter 1989

  • 10. IFC Composite and Regional Total Return Indices

Preface

This study was prepared under the direction of Mark Allen, Assistant Director of the International Capital Markets Division of the Exchange and Trade Relations Department of the International Monetary Fund, with Donald Mathieson, Chief of the Financial Studies Division of the Research Department. The co-authors, staff members from both divisions, are listed on the title page.

Background for the study was provided in part by informal discussions with commercial and investments banks, securities houses, stock and futures exchanges, regulatory and monetary authorities, and the staffs of the Bank for International Settlements, the Commission of the European Communities, the Organization for Economic Cooperation and Development, the World Bank, the International Finance Corporation, and the Japan Center for International Finance. The discussions took place in Amsterdam, Basle, Berlin, Bern, Brussels, Frankfurt, London, New York, Ottawa, Paris, Tokyo, Toronto, Washington, and Zurich at various times in May and June 1989.

In addition to the authors, other Fund staff members taking part in some of the discussions included Luis Valdivieso (of the Exchange and Trade Relations Department) and Humberto Arbulu-Neira (of the Fund's office in Europe). John Clark and Sabine Miltner also made contributions to the study at various stages. Staff of the Bureau of Statistics, particularly Richard Stillson and Richard Hides, developed and compiled the data based on the Fund's international banking statistics. Jean Boyd, Delrene Alvis, Sheila O'Connor, and Margaret Tan patiently typed and retyped the text and tables. Juanita Roushdy, of the External Relations Department, gave the manuscript a final edit and efficiently coordinated the production.

The study benefited from comments by staff in other departments of the Fund and by members of the Executive Board. Opinions expressed, however, are those of the authors and do not necessarily represent the views of the Fund or of the Executive Directors. Similar studies on international capital markets have been prepared in recent years; the previous study was published in April 1989 in the World Economic and Financial Surveys series. The present study was completed in January 1990 and reflects developments to that time.