Financial flows and the developing countries 1 (1)

21975 Vol. 1 No.1 November 1994 FILE COPY  CONTENTS & SUMMARY INTERNATIONAL LENDING EQUITY PORTFOLIO AND CAPITAL MARKETS AND FOREIGN DIRECT INVESTMENT U GLOBAL BORROWING PAGE 4 In the second quarter of 1993, $189.5 billion * EMERGING STOCK MARKETS PAGE 12 was raised in international capital markets, The IFC's dollar-based emerging-markets down 10 percent on the first quarter because composite price index rose by 8.9 percent in of weak economic activity in major industrial the third quarter, with most markets showing countries. At $106.9 billion, gross bond issues big gains. Foreign buying was strong in some were also lower. Lending picked up, thanks markets. Pension reform in Argentina is ex- more to special factors than to any improve- pected to boost development of the domestic ment in underlying fundamentals. Equity is- capital market, and India is looking to improve sues were sharply higher. liquidity in its stock markets. * DEVELOPING-COUNTRY U NEW EQUITIES, QUASI-EQUITIES, BORROWING PAGE 5 AND DERIVATIVES PAGE 14 Developing countries raised $14.7 billion in Developing-country corporations were active bonds and loans in the second quarter of 1993, in international equity markets, thanks to in- about the same as in the first quarter. Bond vestor demand fueled by the strong perfor- issues reached $12.2 billion in the third quar- mance of emerging markets. Borrowers from ter, and continued the recent trend of larger Brazil to Thailand used equity-linked instru- issues, lower spreads, and longer maturities. ments to raise funds. To cut borrowing costs, emerging-market bor- rowers diversified their sources of funds, tap- ping the eurobond market and the Yankee U FRIGNTIRETINVESTMENT and Samurai sectors, as well as Asia's Dragon AND PRIVATIZATION bond market. At $46 billion, FDI flows to developing countries reached an all-time high in 1992, with China a major beneficiary. In the Repub- lic of Korea, outward direct investment out- Cross-border claims of BIS reporting banks paced FDI inflows as local companies sought (including local foreign currency lending) fell to safeguard market shares and lower produc- by $36.4 billion in the first quarter of 1993. In tion costs. the third quarter, lending to Asian countries, especially Thailand, was strong, but lending to China slowed. SECONDARY MARKETS FOR DEVELOPING- COUNTRY DEBT PAGE 17 * MARKET CREDITWORTHINESS PAGE 10 Developing-country creditworthiness con- Declining yields in US long bonds, as well as tinues to improve on better economic policies prospects of Brady-style debt treatment, and stronger growth prospects, according to boosted prices of developing-country debt. A Institutional Investor. Argentina's long-term new index tracking Latin American eurobond foreign currency debt was rated by Standard performance was launched in the third & Poor's, and Moody's rated the country's quarter. Brady bonds and BONEX. 2 FINANCIAL FLOWS QUARTERLY  CONTENTS & SUMMARY OFFICIAL FLOWS: BILATERAL FINANCIAL BRIEF PAGE 23 I AND MULTILATERAL PAGE 19 Emerging stock markets have become more The West Bank and Gaza receive about $2 financially integrated with global markets. billion in commitments for economic devel- Even so, they appear to be inefficient in pric- opment and reconstruction. Cambodia and ing as returns in these markets remain partially Viet Nam clear arrears with the Fund and re- predictable. /f gain access to credit from the IMF, and the World Bank increases funding for environ- ment projects. STATISTICAL APPENDIX * TOTAL EXTERNAL DEBT PAGE 24 M BILATERAL ODA AND EXPORT * AGGREGATE NET LONG-TERM CREDITS PAGE 20 RESOURCE FLOWS PAGE 25 Under its Funds for Development Initiative, U BANK AND TRADE-RELATED Japan seeks to recycle the country's trade sur- NONBANK CLAIMS PAGE 26 plus for development, and EXIMJapan has f COMMERCIAL BANK CLAIMS extended its guarantee to private loans. ON DEVELOPING COUNTRIES PAGE 27 _ COMMERCIAL BANK CLAIMS ON DEVELOPING COUNTRIES, DEBT RELIEF UPDATE BY COUNTRY OF ORIGIN PAGE 28 3 OFFICIAL CREDITORS PAGE 21 * MATURITIES OF BANK CLAIMS ON DEVELOPING COUNTRIES PAGE 32 No new Paris Club rescheduling agreements * FUNDS RAISED ON INTER- were completed in the third quarter. NATIONAL CAPITAL MARKETS PAGE 33 * SECONDARY MARKET DEBT * COMMERCIAL CREDITORS PAGE 21 PRICES PAGE 34 Brazil's creditor banks agreed to a three- U NET FOREIGN DIRECT month extension (to Febr-uarv 28 1994) of the INVESTMENT FLOWS m TO DEVELOPING COUNTRIES PAGE 35 completion date for its restructuring package. South Africa has reached an agreement with U EMERGING STOCK MARKETS PAGE 36 creditor banks on "standstill" debt. The new U COUNTRY GROUPS PAGE 37 arrangement, covering almost eight years, begins onJanuary 1, 1994. I'nttflatboi3ir , fo COMMERCIAL BANK &8eEop;t PROVISIONING AND CAPITAL ADEQUACY PAGE 22 N 151993 US bank profitability remains high on con- tinuing improvement in asset quality and bet- ter productivity. THE WORLD BANK 3  INTERNATIONAL LENDING AND CAPITAL MARKETS GLOBAL BORROWING lar debt. Low long yields also lifted the shares of French franc, sterling, and Swiss franc SLOWED INTERNATIONAL SECAPIT MARKET AC Y bonds. Italian lira issues, too, were up sharply, SLOWED IN THE SECOND QUARTER OF 1993. wt hi aktsaecibn rm13t BOND ISUES WRE WEL DOWN N THE with their market share climbing from 1.3 to 3.8 percent. Deutsche mark bonds, however, RECORD HIGH OF THE FIRST QUARTER. lost ground, with their market share dipping According to the OECD, $189.5 billion was to 6.5 percent because of a temporary easing raised on world capital markets in the second of tensions in the European Exchange Rate quarter of 1993, down 10 percent on the first Mechanism in the second quarter. Yen bonds three months of the year but up 23 percent continued to slip, with their market share on the second quarter of 1992 (table 1). Gross down to 9 percent. bond issues fell by 24 percent on the first Bond maturities shortened slightly in the quarter, to $106.9 billion, but year-on-year second quarter. The average maturity offixed- were 36 percent higher. At around $90 billion, rate eurodollar bonds fell from six years in the fixed-rate bonds accounted for about 87 per- first quarter to 5.4 years. cent of all bond issues. Medium-term note and euro-commercial paper issues were sharply U LENDING REVIVED, THANKS MORE lower in the second quarter. TO SPECIAL FACTORS THAN TO ANY Weak economic activity in major industrial IMPROVEMENT IN UNDERLYING countries depressed demand for new corpo- FUNDAMENTALS. rate finance, but low yields in the bond mar- In the second quarter of 1993, gross new syn- ket and the need to refinance large amounts dicated loans soared to $48.3 billion, up 90 of maturing corporate debt helped to keep percent on the first three months of 1993 and bond offerings buoyant. So, too, did high bor- 36 percent higher than a year ago. The revival rowing requirements of sovereign govemments in bank lending more than doubled the share and record issues from emerging-market bor- of syndicated loans in total financing to 25 rowers. Sovereign borrowing remained strong percent, up from 12 percent in the first quar- in the third quarter: Italy raised $5.5 billion ter. US borrowers accounted for most of the through a two-part global issue. increase, but borrowers in France, Germany, Low US long yields attracted borrowers to Spain, and the UK also helped. Asian borrow- the US dollar sector, which accounted for 39 ers, too, were active. The second quarter also percent of all bond issues (35 percent in the saw use of the Greek drachma and Hungar- first quarter). A flattening of the yield curve ian forint in the syndicated market, which is and a perception that yields had bottomed still dominated by the US dollar sector. encouraged borrowers to raise fixed-rate dol- Behind the surge in syndicated lending was the refinancing of large amounts of maturing INTERNATIONAL CAPITAL MARKET FLOWS debt, mainly by US corporations. This offset (US$ bil on) sluggish demand for funds due to weak glo- Instrument 1989 1990 991 992 993 993 bal economic activity, relatively cheaper alter- Bonds 2537 229.9 297.6 3337 140.0 1069 native sources of funds (bonds), fewer merg- qj lies 8 7.3 23.4 23 5 4.7 8.8 ers and acquisitions, and banks' continuing Synd cated oans 21 124.5 16.0 1 7.9 25.4 48 3 NFarid oher bac< UD faciries 8.4 7.0 77 67 07 36 cautious approach to lending. N 32 ace ocher~~~~~~ ~~~~~~ hc-ieTaes 84 70 7.7 6.7 37 36 ECP andce ocner ioe-ncee- -ten faciltes 73.2 662 80.2 279 406 2 9 Tota 466.5 434.9 524.9 609.7 2 a 89.5 U EQUITY ISSUES IN DEVELOPED STOCK FloesstodevelepngCcoLlnties'Deecent) 5.7 76 9 6.0 7.3 70d MARKETS SOARED. a Note iss..ance ac itec Largely becauseof initialpublicofferings (in- b. Euro-cor merca paper. C. incud gEastercc Eucopeac cousrAres. cluding the $3 billion offeringbyArgentina's d,Est mate. $ feigu