Wed., February 24, 2016
Twenty years ago, a dangerous cocktail of debt accumulated in foreign money and deteriorating exchange rates led emerging markets into financial meltdown, the Financial Times reported. In the aftermath, countries vowed to repent of the “original sin” of borrowing huge sums in non-domestic currencies. Major emerging markets went from having more than three-quarters of their debt in foreign currencies to around half. Finance ministers were applauded for better protecting economies from swings in global market sentiment. Yet as the world recoils from risky assets amid a slowdown in China and collapsing oil prices, emerging market bonds are once again being dragged into the fray. Unable to resist strengthening currencies and double-digit yields at a time when returns in developed markets were falling, the share of local-market government debt owned by foreigners more than doubled between 2009 and 2015. Now they want out.