News Brief

The International Monetary Fund (IMF) today published on its website the latest Emerging Market Financing: Quarterly Report on Developments and Prospects, which covers the second quarter of 2001.

Emerging market assets and financing continued broadly to follow global markets during the second quarter. Against a backdrop of apparent global slowing, perceived emerging market fundamentals and credit quality continued to weaken, and average credit quality in the emerging debt markets fell back to post Russian crisis lows.

Though there were clear spillovers from emerging market countries where credit concerns were heightened, the spillover remained contained to particular emerging markets, and overall emerging market financing held up relatively well during the second quarter. The volume of bond issuance picked up modestly from the first quarter, while the pace of bond exchanges accelerated as the quarter witnessed the largest ever non-distressed bond exchange. The volume of syndicated lending also picked up somewhat, though it remained, as in the previous quarter, at levels well below those of last year. International equity placements, reflecting the poor conditions in global equity markets and low valuations in emerging markets, remained at depressed levels.

The latest Emerging Market Financing report examines in depth two issues:

• It revisits the question of investor discrimination or contagion, and volatility in emerging debt, equity, and foreign exchange markets, providing an update of measures during the July turbulence. Measures of broad-based spillover or contagion across the emerging markets remained well below levels seen in other major historical episodes of stress. Similarly, the pickup in overall market volatility was also relatively modest. The report discusses the role of several factors that can explain the differences in behavior from previous crisis episodes.

• The recent experience with bond exchanges. Three different types of external bond exchanges are characterized: Brady-eurobond swaps; liability profile management (eurobond to eurobond) exchanges; and distressed bond exchanges. The report discusses the broad motivations for each type of exchange, recent experiences with them, ongoing trends, and the potential implications for emerging debt markets.

The baseline outlook for emerging market financing continues to see moderate bond financing flows, prospects for only very selective equity issuance, and syndicated lending continuing at its current pace, which remains well below that of last year. This baseline outlook is subject to a variety of sources of event risk: a sharper than expected slowing in the global economy; the potential for further downside corrections in mature equity markets; and the potential for broad-based contagion across emerging markets from credit concerns in particular markets.

The Emerging Market Financing report is an element of the IMF's surveillance over international capital markets. The report draws, in part, on a series of regular informal discussions with a broad set of private financial market participants. The purpose of the quarterly report is to provide an analysis of developments in emerging bond, equity, syndicated loan and foreign exchange markets, and the IMF Staff's appraisal of key developments, the outlook, and risks for emerging market fundraising on international capital markets. The reports are published approximately four weeks after the end of each quarter.