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ABSTRACT
This article considers the varied borrowing capacity of emerging market governments, a key component of the impact on governments of financial globalization. It focuses on the link between the financialization – defined here as the ability to trade risk – and borrowing capacity, analyzing three case study countries: Brazil, Lebanon and Turkey. Both domestic and international bond markets are considered and differences in the ownership of government bonds in the three countries are highlighted. The financialization of different financial market actors is analyzed, concentrating on two of the most important, domestic commercial banks and individual investors, and the financialization of the structure of each market. It is argued that the greater the financialization, the greater the ability to exit or short. This increases the cost of borrowing and increases the likelihood, and severity, of crisis, thereby reducing government borrowing capacity. Comparative event studies from the three countries demonstrate the influence of financialization in crisis, or potential crisis, situations.
ACKNOWLEDGEMENTS
The research on which this article is based was supported by a Postgraduate Studentship from the UK Economic and Social Research Council. I would like to acknowledge the helpful comments of Mark Aspinwall, David Howarth, Donald Mackenzie and three anonymous reviewers.
Notes
1 Financial year 2004–05. Singapore is anomalous, as it issues domestic debt to develop the domestic market rather than for borrowing purposes, and invests the proceeds abroad.
2 For Rajan, institutional change is the emergence of ‘new entities …such as private equity firms and hedge funds’.
3 EMTA surveyed 66, mainly international firms. Five Brazilian institutions participated, no Turkish and one Lebanese.
4 Interview with investment banker, London, 23 June 2006.
5 End September 2006. Source: Brazilian Treasury, <www.tesouro.fazenda.gov.br/english/hp/public_debt_report.asp>, Table 7 (accessed 7 January 2007).
6 Thirty-nine interviews were conducted in London (January 2005–February 2006) and New York (all bar one in May 2006). All interviewees were involved in the emerging bond market. In Brazil, 26 individuals were interviewed (São Paulo, Brasilia and Rio de Janeiro, 29 August–12 September 2006). Twenty-one interviews took place in Lebanon (Beirut, 2 September–12 September 2005, and one interview in London, 21 October 2005) and in Turkey, 25 interviews (Ankara and Istanbul, 30 November–11 December 2005).
7 October 2006. Source: Turkish Treasury. <www.hazine.gov.tr/english/kaf/2006dibs_eng.xls>, accessed 4 January 2007.
8 Senior official, Banque du Liban, interviewed 8 September 2005.
9 Department Head, Turkish Treasury, interviewed 2 December 2005.
10 Source: Turkish Treasury. <www.hazine.gov.tr/english/kaf/2006dibs_eng. xls>, accessed 4 January 2007.
11 End September 2006. Source: Brazilian Treasury. <www.tesouro.fazenda.gov.br/english/hp/public_debt_report.asp>, Table 7, accessed 7 January 2007.
12 Interviewee estimates.
13 December 2006. Ownership figures from Turkish Treasury official, e mail communication, 8 January 2007, based on BRSA figures. Outstanding debt at end November. Source: Turkish Treasury. <www.treasury.gov.tr/>. Accessed 9 February 2007.
14 Interview with official, Brazilian Ministry of Finance, Brazilia, 6 September 2006.
15 Interviews with foreign banker, São Paulo, Brazil, 29 August 2006; foreign banker, São Paulo, Brazil, 4 September 2006; former official, Banco Central do Brazil, São Paulo, 29 August 2006; hedge fund manager, São Paulo, Brazil, 31 August 2006.
16 Interviews with foreign banker, São Paulo, Brazil, 29 August 2006; official, BM&F, São Paulo, Brazil, 1 September 2006; foreign banker, São Paulo, Brazil, 29 August 2006.
17 Interview with foreign banker, São Paulo, Brazil, 29 August 2006.
18 Interview with Brazilian banker, São Paulo, 30 August 2006.
19 Interview with Turkish banker, Istanbul, 5 December 2005.
20 Interview with Lebanese banker, 8 September 2005.
21 Interview with Lebanese banker, 9 September 2005.
22 Interview with Lebanese banker, 12 September 2005.
23 Interviews with Turkish banker, Istanbul, 5 December 2005; Turkish banker, Istanbul, 7 December 2005, also gave the $300 million figure; and ‘The local banks cannot sell off everything and go flat or go short’ (Turkish banker, Istanbul, 7 December 2005).
24 Interviews with Lebanese banker, 2 September 2005; Lebanese banker, 9 September 2005; Lebanese banker, 12 September 2005.
25 Interview with Lebanese banker, 7 September 2005.
26 Interview with Lebanese banker, 3 September 2005. Also interviews with Lebanese banker, 2 September 2005; and Lebanese banker, 12 September 2005.
27 Interview with Lebanese banker, 7 September 2005.
28 Interview with Turkish banker, Istanbul, 6 December 2005.
29 Interviews with Lebanese banker, 8 September 2005; also Lebanese banker, 3 September 2005.
30 Interview with Brazilian proprietary trader, São Paulo, 29 August 2006.
31 Interview with Lebanese banker, 9 September 2005; ‘local retail clients …only look how much they receive at the end of the maturity. So they don’t trade much’ (Interview with foreign banker, Istanbul, Turkey, 7 December 2005).
32 ‘[R]etail …keep rolling their investments all the time’ (Interview with investment banker, London, 22 June 2005; previously worked at a Turkish bank).
33 Interview with investment banker, London, 5 January 2005.
34 ‘[T]his position that I’ve kept is three weeks old …that's a long time …Nobody buys and keeps things for six months, a year …things change’ (Interview with hedge fund manager, London, 23 June 2005).
35 Interviews with banker, 50 per cent foreign-owned Turkish bank, Istanbul, 8 December 2005; also investment banker, London, 23 June 2005.
36 ‘[T]hey look at the relative spreads of the asset [to] liabilities, even though …the cost of liabilities can increase, they tend to …sit on positive spread trades’ (Interview with investment banker, London, 22 June 2005).
37 Banco Central do Brasil (2006: 34); Banking Regulation and Supervision Agency (2006).
38 Interviews with investment banker, London, 18 February 2005); hedge fund manager, London, 23 June 2005; ‘they’ll go short and …long and …play other things’ (Interview with investment banker, London, 17 February 2005).
39 Interview with Lebanese banker, 12 September 2005.
40 Interview with Turkish banker, Istanbul, 8 December 2005.
41 Interview with Brazilian banker, São Paulo, 29 August 2006.
42 Interview with Turkish banker, Istanbul, 5 December 2005.
43 Interview with Turkish banker, Istanbul, 5 December 2005.
44 Interview with investment banker, London, 22 June 2005; previously worked for a Turkish bank.
45 Interview with Turkish banker, Istanbul, 5 December 2005.
46 Banco Central do Brasil (2006: 34); Banking Regulation and Supervision Agency (2006).
47 Banque du Liban, <www.bdl.gov.lb/edata/elements.asp?Table=t5231-10> (accessed 14 October 2009).
48 Interview with Lebanese banker, 8 September 2005. Also (same interviewee): ‘[Y]ou bought dollars as banks, but you have to place them …with the Central Bank …so you cannot take them out …it's not they enforce them, but they …encourage …really strongly by persuasion and everything, otherwise they would have collapse[d] …and it worked’.
49 Gross international reserves minus principal and interest due within 12 months on central bank foreign currency liabilities except to the Lebanese government.
50 Also interview with Lebanese banker, 9 September 2005.
51 Interview with Banque du Liban official, 8 September 2005.
52 Interview with Lebanese banker, 9 September 2005. Also interviews with Lebanese banker, 8 September 2005; Banque du Liban official, 8 September 2005.
53 Interview with Lebanese banker, 9 September 2005.
54 Interview with former minister, Lebanon, 6 September 2005.
55 On 24 March 2005 (www.moodys.com).
56 Interviews with Turkish banker, Istanbul, 8 December 2005; also Turkish banker, 5 December 2005.
57 ‘[T]hat's the kind of unity we had, locals against foreigners. Because foreigners were talking about the devaluation, collapse and everything’ (Interview with foreign banker, Istanbul, Turkey, 5 December 2005. In 2001 the interviewee worked for a Turkish bank). Also interviews with banker, foreign-owned Turkish bank, Istanbul, 8 December 2005. The bank was not foreign owned in 2001, and was one of the six banks; Turkish banker, Istanbul, 7 December 2005; Turkish banker, 8 December 2005.
58 Interview with Turkish banker, Istanbul, 8 December 2005.
59 Interview with Turkish banker, Istanbul, 7 December 2005.
60 An anonymous reviewer suggests another large bank profited substantially at this time, in a way similar to the Brazilian banks.
61 Interview with banker, 50 per cent foreign-owned bank, Istanbul, Turkey, 8 December 2005. The bank was not part foreign-owned in 2001.
62 Interview with Turkish Banker, Istanbul, 7 December 2005.
63 Interview with Turkish Banker, Istanbul, 7 December 2005.
64 Interview with Brazilian banker, São Paulo, 29 August 2006.
65 Interview with former official, Banco Central do Brasil, Rio de Janeiro, 11 September 2006.
66 Interviews with hedge fund manager, Rio de Janeiro, Brazil, 12 September 2006; former official, Banco Central do Brasil, Rio de Janeiro, 11 September 2006.
67 Interview with former official, Banco Central do Brasil, Rio de Janeiro, 11 September 2006.
68 Interview with Turkish banker, Istanbul, 6 December 2005.
69 Interview with research analyst, London, 23 June 2005.