Model goes astray
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Model goes astray

Investors have piled into Czech koruna Eurobonds since they were first issued last year. Issuers too have continued to be attracted by favourable swap opportunities. Can the interest be sustained or is the vaunted model market for central and eastern Europe flashy but short of take-off power? Catherine Garner reports.

The Czech koruna bond market has been heralded as the model for the emerging capital markets of central and eastern Europe. The Czech Republic has what appears to be a stable economy, the currency is riding high, and the international financial community has tipped it as the first country in the region to join the European Union. Debt issuance is accelerating to keep up with investors partly spurred by high nominal interest rates.

Last September, the market's prodigy, the Eurokoruna, was born. A new-year flurry of koruna-denominated Eurobonds seemed only to underline the market's position ­ in the first few weeks of 1997, 17 were issued with a total value of Kr26.5 billion ($968 million) compared with issues worth Kr32.6 billion in the whole of 1996. Market estimates are already beginning to suggest a total of between Kr100 billion and Kr130 billion for 1997. However, the Czech Republic's reign as sovereign of the region's emerging markets may be short-lived and analysts are beginning once again to doubt its economic health.

"The Czech Republic has lost some of the promise that made it one of eastern Europe's most attractive currencies in the last few years," says Gabor Bognar, economist for eastern Europe at Goldman Sachs.

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