Risk Management of Sovereign Assets and Liabilities
IMF Working Papers, December 1, 1997
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Bibliographic details
- Authors: Marcel Cassard, D. F. I. Folkerts-Landau
- Published: December 1, 1997
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451979619.001
Summary
- In an environment of sizable and volatile capital flows and integrated international capital markets, large and unhedged net external sovereign liabilities expose countries to swings in international asset prices and to potential speculative currency attacks.
- The paper argues that an essential step in reducing emerging market vulnerability to such external shocks is to reform the institutional arrangements governing asset and liability management policies, so as to promote a transparent, publicly accountable, and professional incentive structure.
- 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.
Key findings and analysis
- Large and unhedged net external sovereign liabilities increase vulnerability to:
- swings in international asset prices; and
- potential speculative currency attacks.
- Reforming institutional arrangements for asset and liability management is presented as essential to reduce emerging market vulnerability to external shocks.
- Desired characteristics of reformed arrangements:
- transparency;
- public accountability; and
- a professional incentive structure for managers.
Policy recommendations and implications
- Reform the institutional framework governing asset and liability management policies to:
- Promote transparency in management and reporting.
- Ensure public accountability of sovereign asset and liability decisions.
- Create professional incentives for portfolio managers and debt managers to align risk-taking with public objectives.
- Strengthen asset-liability management practices to mitigate exposure arising from integrated international capital markets and volatile capital flows.
Subject classifications and keywords
- Subject: Asset and liability management; Banking; Currencies; Debt management; External debt; Foreign currency debt; Government debt management; Money; Public debt; Public financial management (PFM)
- Keywords: Africa; Australia and New Zealand; benchmark portfolio; Currencies; Debt management; debt portfolio; foreign currency; Foreign currency debt; Global; Government debt management; long-term debt; Middle East; North America; portfolio manager; Reserves Management; short-term debt; Sovereign Debt Management; U.S. dollar; WP
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- Risk Management of Sovereign Assets and Liabilities