IN EVERY EMERGING-MARKET crisis, the country in question has too much foreign currency debt. Indeed, if any country's debts are in dollars while its revenues are in rapidly depreciating pesos, the end result is sadly predictable. And yet countries continue to issue tens of billions of dollars in foreign-currency bonds, just because they need the money and foreign investors have no interest in buying obligations denominated in pesos. All this is beginning to change, however. During 2004, local markets were the hot new asset class in the world of emerging-market fixed-income investing. Investment banks took notice, and Uruguay and Colombia both came to market with Eurobonds denominated in their domestic currencies. With these bonds, there are no worries about domestic taxes or custody arrangements: the only thing making them different to any other Eurobond is the currency in which the coupon is calculated.
"This is one of the best developments in emerging markets," says Richard McNeil, head of Latin debt capital markets and global liability management at Goldman Sachs.
Sin and redemption
McNeil's enthusiasm is shared by Chris Gilfond, co-head of Latin capital markets at Citigroup, who likes to reference the famous concept of original sin, as put forward in 1999 by Ricardo Hausmann, then chief economist of the Inter-American Development Bank.