Taking structured products to the world
Latin American domestic structured issuance has caught up with the more established cross-border market, thanks in large part to the work of the International Finance Corporation and structured products expert Lee Meddin. But this is just the start of Meddin's plans for the emerging markets, with Latin America likely to take a pioneering role again.
EUROMONEY'S FINANCE MINISTER of the year award usually goes to an emerging-market official, and for good reason. Finance ministers outside the OECD might not be smarter or more sophisticated than their G7 counterparts (although many are) but they certainly have a much harder job to do when it comes to managing their countries' debt. The problem is known as "original sin" – the fact that countries and companies in emerging markets, when they can borrow, can usually only raise money in foreign currency, or at short tenors, or both. Emerging-market borrowers, then, inevitably have levels of currency, interest-rate and rollover risk that their developed-market counterparts would never dream of having to deal with.
The problem is well known, and the solution has long been known in theory: emerging-market economies have to develop liquid domestic capital markets, with well-defined yield curves and the ability to fund a wide range of credits.
That's easier said than done, though, so the International Finance Corporation has decided to step in and help out, with the aid of a few hundred million dollars in World Bank capital.