External Solvency, Dollarisation and Investment Grade: Towards a Virtuous Circle?

Martin Grandes

No 177, OECD Development Centre Working Papers from OECD Publishing

Abstract: Due to the substantial rise in the share of Emerging Markets (EM) in foreigncurrency debt markets during the nineties, country risk in EM has become an issue of increasing concern for both new bond issues and rescheduled non-performing loans. However, as recent episodes show, financial volatility has tended to leave those countries more prone to contagion effects and balance-of-payments crises. Consequently, international bond investors have required higher risk premia to balance the risk-return equation. In order to make Emerging Markets less vulnerable to external shocks, exchange-rate corner solutions such as dollarisation have been proposed. One of the main arguments put forth by the dollarisation supporters is the expected decrease in sovereign spreads, as currency risk will no longer hold. According to this “optimistic” view, which also relies on a credibility spillover effect, such a decrease could begin improving solvency weaknesses while boosting economic growth ... Au cours des années 90, du fait de l’augmentation conséquente de la part des économies émergentes sur les marchés de la dette en devise, le risque-pays associé à ces économies est devenu un sujet de préoccupation croissant lors de l’émission de nouveaux titres obligataires ou du rééchelonnement de créances non honorées. Toutefois, comme le montre l’histoire récente, la volatilité financière a eu tendance à rendre ces pays plus vulnérables aux effets de contagion et aux crises de la balance des paiements. En conséquence, les investisseurs internationaux en obligations ont exigé un relèvement de la prime de risque afin de compenser le ratio risque-rendement. Plusieurs solutions relatives aux taux de change ont été proposées pour réduire la vulnérabilité de ces marchés aux chocs extérieurs : la dollarisation par exemple. L’un des principaux arguments avancés par les tenants de la dollarisation est la diminution attendue des écarts souverains, le risque monétaire ayant disparu. Selon ...

Date: 2001-06-01
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