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Testing the limits of the DMOs

At the end of May, representatives of many of the quasi-independent agencies set up to manage the government debts of OECD and emerging market sovereigns gathered in St Petersburg to compare experiences. There was much to discuss: the meeting came just as diverse pressures are building up on the debt management offices (DMOs).

In emerging markets countries, especially those operating with managed exchange rates and capital controls, these pressures often centre on the urgent need to develop domestic debt markets as a means to fund budget deficits without incurring exchange rate risks. Even in many of the developed countries, notably in the eurozone, the overriding challenge is simply to execute large borrowing requirements in a crowded and fractured market.

These are the most immediate day-to-day tasks. And as these get tougher, debt management offices have had to rein in some of the forward-thinking projects. It is more than a decade since the New Zealand debt management office first captured the market’s imagination with its attempts to calculate a balance sheet for the entire economy, valuing not just roads and buildings but forests and other assets.

Its efforts at asset/liability management have become gradually less ambitious, focusing not on the economy but the government balance sheet and finally just on its financial assets and liabilities.

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