Is Foreign Debt Portfolio Management Efficient in Emerging Economies?

Author/Editor:

Khaled Hussein

Publication Date:

August 1, 2001

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper develops a simple model of foreign debt portfolio management. The model suggests that, under mild conditions, the currency composition of a country's foreign debt portfolio is responsive to exchange rate movements. Empirical evidence is provided for a panel of 14 emerging economies in the period 1970-98. Attention is focused on the stocks of foreign liabilities denominated in U.S. dollars, deutsche marks (DM), Japanese yen, and Swiss francs. The results of the empirical analysis show that foreign debt portfolio management has been sub-optimal in the countries under examination. In these countries, the currency composition of foreign debt has not reflected a substitution effect away from the currencies that have appreciated over time vis-à-vis the U.S. dollar.

Series:

Working Paper No. 2001/121

Subject:

Asset and liability management Currencies Debt management Exchange rates External debt Foreign exchange Government debt management Money Public financial management (PFM)

English

Publication Date:

August 1, 2001

ISBN/ISSN:

9781451854381/1018-5941

Stock No:

WPIEA1212001

Pages:

23

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