| Lee Meddin |
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.