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Overcoming Original Sin

  • Hyun Song Shin und Goetz von Peter EMAIL logo
Veröffentlicht/Copyright: 5. Dezember 2022
Journal of Globalization and Development
Aus der Zeitschrift Journal of Globalization and Development Band 13 Heft 2

Abstract

This paper draws on newly expanded BIS government bond statistics to document how emerging market sovereigns have reduced their reliance on foreign currency denominated bonds since the emerging market crises of the 1990s. With external funding still important for emerging market governments, they have increasingly been able to borrow from foreign investors in their domestic currency. In this respect, emerging market governments are overcoming “Original Sin”. The flipside of these developments is that foreign investors increasingly bear the currency risk associated with fluctuations in emerging market exchange rates, making foreign investors’ portfolio decisions more sensitive to prevailing global financial conditions. Emerging markets thus remain vulnerable to reversals of investor sentiment in bond markets, whether or not they have outstanding debt in foreign currency.

Keywords: emerging market economies; sovereign bonds; international lending; international financial markets; foreign investors; Original Sin
JEL Classifications: F34; G15; H63
Corresponding author: Goetz von Peter, Bank for International Settlements, Basel, Switzerland, E-mail:

We thank the Editors, Ugo Panizza and Andrea Presbitero, an anonymous Referee and our discussant Gian Maria Milesi-Ferretti, Kristy Jansen and participants at the May 2021 JGD Workshop on “Sovereign Debt and Development”, for very helpful comments. We are grateful to Mert Onen for excellent research assistance, and to Bilyana Bogdanova, Tracy Chan and Kristina Micic for their work on enhancing the BIS government debt securities statistics. The views expressed are ours and do not necessarily reflect those of the Bank for International Settlements.

Appendix A

The BIS statistics on government bonds outstanding provide harmonised series on government bonds issued in domestic and foreign currency. They cover long-term debt securities – with original maturities longer than one year – issued by the central and general government, where the latter includes central, state and local government and social security funds. (Bogdanova et al. 2021) describe how we combine various sources to provide a consistent currency breakdown across all markets, dissolving the earlier distinction between domestic and international issuance.

The amounts outstanding are based on a BIS statistical Table C4, which provides annual series on 55 countries extending back to the early 2000s for most countries. At end-2020, the nominal value of government bonds outstanding for the 55 countries combined stood at $58 trillion. EMEs account for a quarter of this total, or $14 trillion. We use an unpublished quarterly version of this dataset, composed of reported quarterly series where available and interpolated annual series otherwise. We extend coverage beyond the published data by drawing on other sources to extend series for China and other EMEs back in time.

Table A1:

Emerging market economies in the sample (25 countries).

Asia (8) Europe (8) Latin America (6) Africa & Middle East (3)
China Bulgaria Argentina Israel
Chinese Taipei Croatia Brazil Saudi Arabia
India Czech Republic Chile South Africa
Indonesia Hungary Colombia
Korea Poland Mexico
Malaysia Romania Peru
Philippines Russia
Thailand Turkey

The dataset includes 27 EMEs, based on the country grouping used in the BIS Annual Report 2020. We restrict our analysis to 25 EMEs, excluding Singapore and Hong Kong SAR. Their small footprint in government bond markets stands in sharp contrast to their role as international financial centres, a reason they are often classified as advanced economies instead.

We complement the amounts outstanding in general government bonds by series on foreign holdings, hand-collected from national sources. Compared to related efforts, we distinguish systematically between domestic and foreign currency bonds; our collection also differs from Arslanalp and Tsuda 2014; Du 2022 in that we focus on solely long-term government bonds and rely more extensively on reported national series.

The collected series typically refer to foreign holdings of domestic currency government bonds. This complements the information available from QEDS, the IIP or Arslanalp and Tsuda (foreign holdings in all currencies). When the series are consistent with each other, we combine them to infer external holdings of foreign currency bonds as a residual. When no holdings series for domestic currency bonds are available, we infer them from the difference between total external holdings and foreign currency bonds outstanding, based on the BIS International Debt Securities (IDS). In each case, we apply several boundary constraints to ensure consistency between estimated holdings and outstandings denominated in domestic and foreign currencies, as described at length in our BIS working paper (forthcoming).

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Received: 2021-07-16
Accepted: 2022-07-12
Published Online: 2022-12-05

© 2022 Walter de Gruyter GmbH, Berlin/Boston

Artikel in diesem Heft

  1. Frontmatter
  2. Symposia_Articles
  3. Towards HIPC 2.0? Lessons from Past Debt Relief Initiatives for Addressing Current Debt Problems
  4. A Mountain of Debt: Navigating the Legacy of the Pandemic
  5. Policy Analysis
  6. Debt Dynamics in Emerging and Developing Economies: Is R − G a Red Herring?
  7. Symposia_Article
  8. The Political Economy of Bilateral Lending from Emerging Creditors
  9. Research Foundation
  10. The Odious Haitian Independence Debt
  11. Policy Analysis
  12. On the Potential of Sovereign State-Contingent Debt in Contributing to Better Public Debt Management and Enhancing Sustainability Outcomes
  13. Symposia_Article
  14. Overcoming Original Sin
  15. Symposium
  16. Sovereign Debt Restructuring: The Way Forward
https://doi.org/10.1515/jgd-2021-0055
Schlagwörter für diesen Artikel
emerging market economies; sovereign bonds; international lending; international financial markets; foreign investors; Original Sin

Artikel in diesem Heft

  1. Frontmatter
  2. Symposia_Articles
  3. Towards HIPC 2.0? Lessons from Past Debt Relief Initiatives for Addressing Current Debt Problems
  4. A Mountain of Debt: Navigating the Legacy of the Pandemic
  5. Policy Analysis
  6. Debt Dynamics in Emerging and Developing Economies: Is R − G a Red Herring?
  7. Symposia_Article
  8. The Political Economy of Bilateral Lending from Emerging Creditors
  9. Research Foundation
  10. The Odious Haitian Independence Debt
  11. Policy Analysis
  12. On the Potential of Sovereign State-Contingent Debt in Contributing to Better Public Debt Management and Enhancing Sustainability Outcomes
  13. Symposia_Article
  14. Overcoming Original Sin
  15. Symposium
  16. Sovereign Debt Restructuring: The Way Forward
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