Vol q Not i99T7 A World Bank Business Quarterly p6 p'0 p18 p21 p25 i _ ' S S a $ $ $ $ r w$$t t$$U _F~~~~~~~ , ' = ' I ^ t t a i "0. ~~~~~~~,qZ, , ,=,2, - 1E 02 M- Financial flows increased strongly in the second thefirsthalfofl997are 25% higherthan thesame quarter, with the volume of bond issuances par- period in 1996. Tunisia, Lithuania, and Uruguay ticularly heavy. In Latin America bond issuances were assigned investment grade ratings. Stock rose sharply, stock markets boomed, the number markets rose 5% in the second quarter, with of equity issues soared, and the largest privatiza- IFCI's Latin American index up a phenomenal tion to date was concluded. Bond issuances 20%. Most East Asian markets posted declines. surged to a record $35 billion, with Latin Ameri- New equity issuesjumped 111% over the low first can issues up more than 50% over the first quar- quarter figure, as Latin American issues reached ter. Spreads continued to decline, although almost $2 billion. Multilateral commitments of maturities shortened. After an initial decline in official flows increased from $4 billion in the first March, secondary market prices rebounded by quarter to $6 billion in the second, as both the 2% for the quarter. Recorded loan commitments World Bank and the International Monetary Fund reached $24.9 billion; the slight decline from last approved a heavier volume of loans before the quarter's figure probably reflects the lack of com- end of their fiscal vears. This quarter's financial plete reports on second quarter transactions. brief highlights the recent improvements in the Even with incomplete reports, commitments for infrastructure serving emerging stock markets. International lending and capital markets 6 Bonds 6 BOND ISSUANCE, SECONDARY MARKET TRADING SURGES 6 GOVERNMENTS ACCOUNT FOR LION'S SHARE OF BOND ISSUES 6 EAST ASIA AND PACIFIC BORROWING RECOVERS FROM FIRST QUARTER China issues $2.9 billion in bonds. Malaysian company issues Yankee bond. Philippines issues century bond. Thailand issues bond. 7 SOUTH ASIA HAS MODEST PRESENCE IN MARKET Indian companies borrow. Pakistan's government issues first bond since assuming office. 7 SOUTH AFRICA TARGETS JAPANESE INVESTORS 7 ISSUANCE OUT OF EUROPE AND CENTRAL ASIA UP STRONGLY Activity in Russia is strong. Turkey returns to market. Region's banks tap market. Moldova, Romania, and Slovenia debut. 8 VOLUME OF LATIN AMERICAN BONDS SURGES Brazil leads region in bond volume. Mexico issues $6.2 billion in debt. Argentina diversifies cur- rency denomination of bonds. Ecuador issues Eurobond. Jamaica debuts in market. Uruguay taps Samurai market. Borrowing by Venezuela increases. 10 LEBANON AND BARRAIN TAP BOND MARKET Private bank in Bahrain borrows. Lebanon debuts in deutsche mark market. 10 SPREADS NARROW BUT MATURITIES DECLINE IN SECOND QUARTER 10 FIXED-RATE ISSUES CONTINUE TO DOMINATE 11 DOLLAR-DENOMINATED BONDS ACCOUNT FOR INCREASING SHARE OF MARKET 11 SECONDARY MARKET PRICES RISE 11 DEMAND FOR EMERGING MARKET DEBT SURGED IN FIRST QUARTER Financial Flows and the Developing Countries Contents and Summary I I Commercial bank loans 11 VOLUME OF SYNDICATIONS RISES 12 NONSOVEREIGN PUBLIC SECTOR PRESENCE RISES SHARPLY 12 LOANS To EAST ASIA DECLINE IN SECOND QUARTER China raises $2.4 billion. Private sector and public sector banks tap market in Indonesia. Private sector dominates borrowing by Malaysia. Philippines borrows for infrastructure. Thai borrowing declines. 13 INDIA DOMINATES BORROWING BY SOUTH ASIA India accounts for 85% of the region's borrowing. Pakistan reports transactions. 13 INVESTORS REGAIN CONFIDENCE IN SOUTH AFRUCA 14 EUROPE AND CENTRAL ASIA RAISE $8.1 BILLION Russia borrows $3.4 billion. Loan volume in Croatia increases. Bank from Czech Republic borrows at narrow spread. New borrower enters market in Estonia. Other countries in region borrow. 15 PRIVATE SECTOR ACCOUNTS FOR 80% OF LOANS TO LATIN AMERICA Mexico is largest borrower in region. Brazil and Chile borrow mediumterm funds. Panamanian bank taps market. 15 FIRST EGYPTIAN PRIVATE SECTOR BANK BORROWS ON INTERNATIONAL LOAN MARKETS 15 SIZE, MATURITY OF SYNDICATED LOANS RISE IN 1997 16 VOLUME OF PROJECT FINANCE REMAINS HIGH Share of infrastructure sector declines. Maturities lengthen and size of loans increase. China, Indonesia and the Philippines account for bulk of East Asian loans. India concludes only deal in South Asia. Gazprom arranges jumbo loan in Russia. Poland, Turkey borrow for infrastructure. Saudi firm concludes only deal in Middle East. 1 7 Market creditworthiness 17 TUNISIA, VIETNAM, LITHUANIA, URUGUAY ASSIGNED RATINGS S&P awards investment-grade rating to Tunisia. Moody's gives Ba3 rating to Vietnam's debt. S&P awards investment-grade rating to Lithuania. Moody's awards investment-grade rating to Uruguay. 18 ARGENTINA AND BRAZIL UPGRADED, THAILAND DOWNGRADED S&P raises Argentina's rating from BB- to BB. Brazil is upgraded from B+ to BB-. Thailand's credit rating is downgraded from A3 to A2. Equity portfolio and foreign direct investment 1 8 Emerging stock markets 18 IFC's INVESTABLE COMPOSITE INDEX (IFCI) RISES 5% IN THE SECOND QUARTER 18 ASIAN MARKETS SHOW VARIED RETURNS Thailand posts largest decline for the quarter. Malaysian market falls. Philippines stock exchange drops 15%. Indian market rebounds. China's market rises 13%. Markets in Sri Lanka and Indonesia rise. 19 MARKETS VOLATILE IN EUROPE, MIDDLE EAST AND AFRICA Russian equities soar. Hungarian market rises. Slovenia's stock market declines almost 21%. Czech market drops 18%. Poland posts a decline of 16%. African economies show varied results. 20 MOST LATIN AMERICAN MARKETS REGISTER DOUBLE-DIGIT GAINS Venezuela's market booms. Brazilian market is up. Mexican equities rise 18%. Chile's market rises 15%. Peruvian stock market rises 14%. August 1997 * Contents and Summary 21 New equities 21 NUMBER OF NEW EQUITY ISSUES LISTED ON US STOCK EXCHANGE SOARS 21 VOLUME OF NEW EQUITY ISSUES MORE THAN DOUBLES IN SECOND QUARTER 21 CHINA IS LEADING EQUITY ISSUER IN SECOND QUARTER 22 MANY NEW EQUITY ISSUES OFFERED IN LATIN AMERICA Brazil issues largest Latin American equity offering of the year. Argentine equity issue tied to telecommunications. Chile issues its largest IPO ever. Peru issues equity in manufacturing. 22 EASTERN EUROPE ISSUES NEW EQUITY Hungary issues equity in energy. Poland issues largest equity offering to date. Egyptian Bank issues equity. Turkey is active in second quarter. Slovenian real estate firm issues international equity. Russian cellular firm issues American depository shares. 23 NEW MUTUAL FUNDS LAUNCHED New fund targets Central America. New fund launched for Balkans. Russian hedge fund launched. 24 Foreign direct investment and privatization 24 UNCTAI) REPORTS CONTINUED INCREASE IN FDI FLOWS 24 UNCTAI) REPORTS HIGHER DIRECT INVESTMENT IN AFRICA AND MIDDLE EAST 24 CONTROVERSY OVER INVESTMENT IN UKRAINE 24 CHILEAN COMPANIES INVEST ABROAD 25 VIETNAM TELECOMMUNICATIONS INDUSTRY COUNTS ON FDI 25 FOREIGN INVESTMENT IN CHINA DECLINES; CHINA INVESTS IN KAZAKUSTAN'S OIL SECTOR 25 LATIN AMERICA CONTINUES TO RECEIVE SIGNIFICANT FDI FLOWS 25 LATIN AMERICA LEADS IN VOLUME OF PRIVATIZATIONS Brazil, Mexico, Peru, Colombia, Panama, Poland, Hungary, Greece, Serbia, China, Thailand, Morocco, Saudi Arabia, and Egypt highlighted. Official flows 26 Multilateral flows 26 Multilateral commitments rise this quarter 26 World Bank commitments increase 27 Commitments by other multilaterals vary 27 Bilateral ODA and export credits 27 JAPAN TO CUT ODA BUDGET 27 FRENCH COMMITMENTS FFEL IN 1996 27 EXPORT-IMPORT BANK OF JAPAN LENDS TO TUNISIA 27 EXPORT-IMPORT BANK OF THE US LENDS TO RUSSIAN FEDERATION Debt relief update 28 Official creditors 28 JORDAN SIGNS NONCONCESSIONAL RESCHEDULING * FinancialFlows and the Developing Countries Contents and Summary 28 Commercial creditors 28 BOSNIA AND HERZEGOVINA SIGN AGREEMENT IN PRINCIPLE WITH COMMERCIAL BANK CREDITORS Financial brief: Equity market infrastructure An increasing share of private capital flows to developing countries are channeled to domestic equity markets. Improvements in market infrastructure, or the systems and instititutions that facilitate the trade and custody of securities, would help attract investors and reduce systemic risks. Statistical appendix 32 World Bank commitments 3 33 New bond issues U 34 New loan issues U 35 New equity issues * 37 Bank and trade-related nonbank claims 3 38 Commercial bank claims on developing coun- tries U 39 Commercial bank claims on developing countries, by country of origin U 43 Maturities of bank claims on developing countries E 44 Funds raised on international capital markets U 45 Sec- ondary market debt (bid) prices a 46 Emerging stock markets I 47 Country groups Note: Tables on extemal debt, aggregate long-term resource flows, and foreign direct investment flows are published only as data are updated. The Republic of Korea is no longer included in the regional aggregates in the text tables or the statistical annex because it is now classified as a high-income country. This change results in significant differences in the totals for all developing countries and East Asia and the Pacific from those reported in previous editions. We will continue to discuss Korea's financial transactions in the text. August 1997 * E EE B~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~" -r> g Et Bonds accounted for about half of total issuances by developing countries in the first six months of Bond issuance, secondary market 1997. Latin American governments borrowed trading surges $10.5 billion of the $17.9 billion in sovereign issues, with Argentina, Brazil, and Mexico the Developing countries borrowed a record $35 bil- major players. Borrowing by the Russian Federa- lion on the international bond market in the sec- tion increased issuances by Eastern European Developing ond quarter, pushing the volume for the first six sovereigns. countries months of 1997 to $55 billion, 45% higher than the comparable period in 1996 (table 1). Latin East Asia and Pacific borrowing borrowed a American borrowers accounted for $30 billion in recovers from first quarter record $35 billion issuances, about 55% of the total. Secondary mar- ket trading in developing country debt was also The volume of bond issuances in the East Asia and strong: according to the Emerging Markets Pacific region doubled over first quarter volume, Traders Association, trading volume of develop- bringing the total for the first six months of 1997 ing country eurobonds and Brady debt doubled to to about half the volume issued in 1996 (figure 1). $5.3 trillion in 1996 and increased further in the Spreads for some borrowers declined substantially first quarter of 1997. Activity in eurobonds and over the past 3-4 years. local currency debt exceeded activity in Bradys for the first time. CHINA ISSUES $2.9 BILLION IN BONDS. China's government borrowed DM 500 million ($288 mil- Govermnents account for lion's share lion) in a 5-year issue with a spread of 55 basis of bond issues points over the comparable German risk-free rate. The low spread partly reflected the issue's scarcity The volume of sovereign bond issues rose by over value; China has had only one deutsche mark 60% in the second quarter, and sovereign issues issue since 1990. Of the $1.8 billion raised by China's nonsovereign public institutions, the TAB_E I Bond issues by type of borrower majority went to banking and finance institutions. US$ millions 1997 1997 The Bank of China issued a $300 million floating- 1995 199b Ql Q2 rate note, the largest nonsovereign issue by a Chi- All deve oping countries 47,749 74,630 20,248 34,819 nese firm in 17 years. Prvate 15,473 22,933 7,059 10,879 Sub Saharan Afnca 100 250 0 40 EastAsia and the Pacific 6,516 7,872 3,086 4,523 MALAYSIAN COMPANY ISSUES YANKEE BOND. South Asia 520 672 314 3 11 Malaysia's national power company, Tenaga Europe and Central Asia 541 559 428 994 Latin America and Caribbean 7,746 13,421 3,231 4,636 Nasional Bhd., issued the largest Yankee bond of Middae East and North Africa 50 160 0 375 the first half of 1997. The 10-year deal was split Sovereign 24,253 41,166 10,976 17,871 into two tranches: a $300 million tranche with a 5- Sub-Saharan Africa 496 782 0 343 EastAsia and the Pacific 569 3,459 50 .562 year put priced at 42 basis points over US Trea- South Asia 0 150 200 300 suries and a $500 million note priced at 73 basis Europe and Centra Asa 10,204 9,003 2,366 4,965 Latin America and Caribbean 12,105 27,345 8,136 10.453 ponts over Treasures. M dd e East and North Africa 879 428 225 248 Otherpublic 8,023 10,530 2,212 6,069 PHILIPPINES ISSUES CENTURY BOND. After a Sub-Saharan Africa 396 140 0 34 postponement because of poor market condi- East Asia and the Pacific 3,083 4,241 978 2.030 South Asia 262 220 425 0 tions, the government of the Philippines issued a Europe and Central Asia I,50 230 150 594 $100 million inaugural "century bond" with a Latin America and Caribbean 2,73 5,449 609 3,3 2 Midde East and North Africa 50 250 50 co spread of 197 basis points over US Treasuries. Source: Euromoney Bondware and Wor/d Bank. According to the central bank, the issue was aimed Financial Flows and the Developing Countries International lending and capital markets| ~~~~~~~South Asia has modest presence F.GSRE Launch spreads for selected Asian borrowers, 1 997Q2 in market Basis points Bank of China, China (5-year debt) Bond issues from South Asia totaled $611 million 98 in the second quarter, down from $939 million in the first quarter. Despite political uncertainties, Indian companies were successful in borrowing in 31 international markets. Lesser-known corpora- tions raised more than $300 million, with maturi- ties ranging from 3 to 10 years. Pakistan's Mar 94 Jun 97 government issued its first international bond Tenaga Nasional Bhd., Malaysia (I 0-year debt) since assuming office last October. The $300 mil- 89 lion 3-year floating-rate note had a spread of 3.95% over 6-month LIBOR, an effective spread i5 s8 over US Treasuries of 420 basis points. The new government is liberalizing foreign investment in its capital markets by reducing taxation of for- eigners and permitting trading in the secondary Jun 94 Apr 97 debt markets. Philippine National-Bank. the Philippines (3-year debt) 220 South Africa targets Japanese investors South African bond issues totaled $417 million in the second quarter. The government returned to the Samurai market after an absence of 2 years with a 40 billion yen ($343 million) issue carrying a maturity of 7 years and a coupon of 3.3%. The issue was reportedly launched at a spread of 70 basis points over LIBOR, a much lower spread 185 than the 197 basis points over LIBOR on the 5- year bond issued in 1995. Eskom, the public energy company, issued a 5-year eurorand for 150 million rand ($34 million). Foreign investors' Dec 93 Jun 97 confidence in South Africa, which was shaken fol- Bond issuance Source: Euromoney Bondware and World Bank. lowing last year's depreciation of the rand, report- edly improved in the first half of 1997. out of Europe and Central Asia at setting maturity and interest rate benchmarks. Issuance out of Europe and Central more than The government also issued a $400 million 30- Asia up strongly year fixed-rate issue, with a spread of 185 basis doubled in the points over US Treasuries. Bond issuance out of Europe and Central Asia second quarter more than doubled in the second quarter, reach- THAILAND ISSUES BOND. Despite the down- ing $9.5 billion for the first six months of 1997 grading of Thailand's foreign currency rating (compared to $9.7 billion for the whole of 1996). from A2 to A3, the government issued a $600 mil- The Russian Federation borrowed 45% of the lion 10-year bond wAith a spread of 90 basis points total flows; Poland and Turkey accounted for a over US Treasuries. third. Some countries not pressed for funds August 1997 S International lending and capital markets borrowed nevertheless in order to maintain a LIBOR rate) on a DM 30 million ($18 million) presence or establish benchmarks. floating-rate note. AcTIVITY rN RussIA IS STRONG. The City of MOLDOVA, ROMANIA, AND SLOVENIA DEBUT. Moscow debuted with a $500 million fixed-rate 3- The government of Moldova issued its inaugural year issue with a spread of315 basis points over US public eurobond, a $75 million 5-year issue. The Treasuries. The issue was reportedly heavily over- 340 basis point spread over US Treasuries was The volume of subscribed, and the spread was reduced from the lower than the 350-375 basis points expected by bonds issued by expected range of 325-350 basis points. The City the market. The Romanian government tapped of St. Petersburg followed with a $300 million 5- the international markets directly for the first Latin American year issue priced at 313 basis points over US Trea- time, with a DM 600 million ($352 million) 5-year countries suries. The Ministry of Finance borrowed $2 issue launched at 300 basis points over German billion for 10 years, paying 375 basis points over unity bonds. The issue was increased from its ini- increased by Treasuries. The issue was reportedly oversub- tial level by DM 100 million, and the costwas lower more than 500/% scribed. Issues by two private sector banks were than the earlier dollar-denominated offshore priced at about 150-175 basis points over munici- bond issued by its National Bank. Slovenia issued palities. LUKoil borrowed $230 million at 170 its first deutsche mark bond for DM 400 million basis points over Treasuries. ($237 million) with the dual objective of funding its financial requirements and broadening its TURXEY RETURNS TO MARKET. The Turkish investor base. government issued its first bond on the interna- tional markets since its credit rating was down- Volume of Latin American bonds surges graded in March, paying 350 basis points over US Treasuries to secure $400 million. The issue was The volume of bonds issued by Latin American the government's first 5-year deal since 1992. It countries increased by more than 50% over the also issued a jumbo DM 1 billion ($586 million) first quarter, reaching $18.4 billion in the second bond with a 5-year maturity and a spread of 250 quarter. Issuances by Latin American countries basis points over German Unity Bonds. Ottoman accounted for more than half of total bond Finance Co. took advantage of the country's estab- issuances by developing countries in the quarter. lished deutsche mark yield curve and issued a DM The region borrowed $30 billion in the first half 150 million ($89 million) 3-year note priced at 338 of 1997, about two-thirds of the amount borrowed basis points over the comparable German risk-free in all of 1996. Both governments and private busi- rate. The note was the first eurobond issued by a nesses have taken advantage of a favorable climate private bank in Turkey. for regional growth to increase bond issuances, improve borrowing terms, and diversify their REGION'S BANKS TAP MARKET. The Czech investor bases. Export Bank launched a $250 million 5-year issue with a spread of 50 basis points over US BRAZIL LEADS REGION IN BOND VOLUME. Brazil Treasuries. The deal is believed to represent the borrowed $7.1 billion in the second quarter. The lowest spread ever extended in the region on a government raised about $550 million through a 5- fixed-rate. Croatia's Bank for Reconstruction year package denominated in Austrian schillings, and Development issued a 700 million Austrian Dutch guilders, and French francs. The launch schilling ($58 million) 5-year bond with a spread spread was 173-185 basis points over risk-free secu- of 80 basis points over the risk-free rate. The rities. The government also issued $3 billion in Union Bank of Estonia, a private bank, secured unsecured global bonds in a swap for existing Brady funding at its lowest spread yet in the interna- bonds. The issue, the largest global bond from a tional markets (80 basis points over the 3-month developing country, was launched at a spread of f FinancialFlows and the Developing Countries International lending and capital markets 395 basis points over US Treasuries and was report- 500 million lira ($292 million) note priced at 160 edly well oversubscribed. basis points over 3-month LIBOR, and borrowed in sterling for 10 years at a cost of 280 basis points MEXIco ISSUES $6.2 BILLION IN DEBT. Dollar- over gilts. The government also issued local cur- yen-, lira-, and sterling-denominated government rency eurobonds with 5-year maturities and debt accounted for half of Mexico's total spreads of 244 basis points over US Treasuries. issuances in the quarter. The lira-denominated The City of Buenos Aires became the first devel- bond had a maturity of 20 years, the longest for a oping country municipality to tap the eurolira Spreads on lira bond by a developing country borrower. The market. government's STG 300 million ($486 million) sterling issue was the largest by any developing ECUADOR ISSUES EUROBOND. Ecuador issued a have declined country in that sector. The government also two-tranche eurobond consisting of a $350 mil- significantly issued $1 billion in floating rate notes. Meanwhile, lion fixed-rate 5-year issue priced at 40 basis points Pemex brought to market the lowest-cost public over US Treasuries and a $150 million 7-year float- since 1996 sector issue since the peso crisis. ing-rate issue priced at 475 basis points over 6- month LIBOR. ARGENTINA DIVERSIIE1S CURRENCY DENOMINA- TION OF BONDS. Spreads on Argentine debt have JAMAICA DEBUTS IN MARKET. Jamaica issued a declined significantly since 1996 (figure 2), and $200 million 5-year bond with a spread of 335 basis debt has been issued in a wider variety of curren- points over US Treasuries. Strong demand led to a cies. The government of Argentina tapped the doubling of the size of the issue and reduced the schilling sector with a SCH 1 billion ($85 million) price by 15 basis points. The government reportedly 7-year deal with a spread of 183 basis points over plans to use the proceeds to retire expensive debt. Austrian government bonds. The government also issued a 50 billion yen ($397 million) bond URUGUAY TAPS SAMURAI MARKET. The govern- on the Spanish Matador market (the first devel- ment of Uruguay borrowed 10 billion yen ($79 oping country issuance in this market since 1994), million) for 5 years at 70 basis points over LIBOR. tapped the lira market for a 7-year floating-rate The spread on Uruguay's yen-denominated debt was 127 basis points in October 1994. FIGURE 2 Spreads on Argentine bonds BoasE points FIGUR 3 Spreads on Lebanese bonds Sovereign issues Basis points 372 Private bank issues 335 Sovereign issues 320 Private bank issues 285 255 220 183 100 1996 1997Q2 1996 1997Q2 Note: Sovereign spreads are on Austrian schillings issues, Private bank 1995 1 997Q2 1996 1 997Q2 spreads are on US$ issues. Source: Euromoney Bondware and World Bank. Source: Euromoney Bondware and World Bank. August 1997 * International lending and capital markets BORROWING BY VENEZUELA INCREASES. Spreads narrow but maturities decline Venezuela issued $1.3 billion of debt in the sec- in second quarter ond quarter, its heaviest borrowing since 1994. Tapping the dollar market for the first time since Improved terms were reflected in the narrower late 1993, the government issued a $315 million spreads during the second quarter. Maturities, 10-year bond priced at 265 basis points over US however, declined (figure 4). Excluding the Treasuries. The spread reportedly narrowed in Philippines' 100-year bond, the average maturity Improved terms secondary market trading in the days following of bond issues from developing countries fell were reflected the issue. Other issues were by the private sector. from 9 years in the first quarter to 7 years in the second quarter, with all regions except Europe in the narrower Lebanon and Babrain tap bond market and Central Asia borrowing at shorter maturities. spreads during A fall in the average maturity of ThaI bonds of PRIVATE BANK IN BAHRAIN BORROWS. A private nearlv 9 years reduced the average for East Asia by the second bank in Bahrain borrowed for 5 years through a almost 2 years. In Latin America lower maturities quarter floating-rate note issued at 37.5 basis points over for Argentina, Mexico, and Uruguay resulted in LIBOR. The issue's success reflected the scarcity an average decline in maturity length of 3 years, of regional issuers with credit ratings of despite the 30-year issue from Brazil and 20- and Baa2/BBB+ or higher and paying more than 20 25-year issues from Venezuela. Maturities on basis points over LIBOR. Indian issues dropped by half. LEBANON DEBUTS IN DEUTSCHE MARK MARKET. Fixed-rate issues continue to dominate The government of Lebanon borrowed DM 250 mil- lion ($148 million) at a spread of 175 basis points Fixed-rate issues continued to account for about over the German risk-free rate, well below the rate 80% of total issues, although the share of floating- paid in 1995 (figure 3). The government also issued rate issues increased slightly (by 4 percent) over a fixed rate $100 million 10-year bond priced at 100 the first quarter (figure 5). The volume of con- basis points over US Treasuries. The principal on vertible issuances, which are marketed to an the loan was guaranteed by the World Bank. Other investor class interested in an equity investment deals, by private and public sector banks in coupled with a minimum fixed-income return, Lebanon, were well received in the market. remained low. FIGURE4 Bond issues from developing FIGURE s Bond issues from developing countries, by maturity countries, by type US$ billions US$ millions 74.6 Over 15 years n 74.6 Floating n 1 1-1f5 years FH Convertible El ---3 3-it.mWi 6-10 years H Fixed rate a I-S years U .~~~~~~~~~3. 34.8 _ 1996 1997Q1 1997Q2 1996 l997Ql 1997Q2 Source: Euromoney Bondware and World Bank. Source: Euromoney Bondware and Word Bank. j Financial Flows and the Developing Countries * International lending and capital markets Dollar-denominated bonds account for fell to 41.4%, down from 50.7% in 1996, 57.7% in FIGURE 7 increasing share of market 1995, and 60.9% in 1994. Local market instruments Currency composition accounted for 26.4% of reported volumes, up from of developing country The share of dollar-denominated fixed-income 22.4% in 1996. The largest volume of trading took bond issues, 1997Q2 securities rose from 64% in the first quarter to place in Brazil ($559 billion), Argentina ($344 bil- East and South Asia 76% in the second, partly as a result of the appre- lion), Mexico ($275 billion), Venezuela ($103 bil- Yen DM ciation of the dollar. The share of deutsche lion), and Russia ($103 billion). 10% 3% mark-denominated securities plummeted from more than 20% in the first quarter to 6% in the Commercial bank loans second. The primary users of this market were U Eastern European countries, some of which Volume of syndications rises LatinAmerica sought to establish benchmarks in the market. ($18. bio ($18.4 billion) The share of yen bonds remained stable, with The estimated volume of loan syndications for the Others issuances from East Asia and Latin America. first quarter was revised upward to $26.4 billion 3% (from $20.1 billion, as reported in the last issue of Misc. 24% s Secondary market prices rise Financial Flows), following reports of private sector 73% transactions in East Asia, Latin America, and the The rise in US interest rates in March contributed Middle East. Loan syndications in the second quar- to a decline in secondarymarketpricesduringApril. ter are estimated at $24.9 billion, which may imply Europe and Central Asia Strong economic indicators for the US boosted some increase over the first quarter once all trans- ($6.5 billion) prices in May and June. Overall, the average sec- actions are included. Total loan syndications for ondary market prices of developing country debt the first 6 months of 1996 are now estimated at | 74% rose almost 2% in the second quarter (figure 8). $51.3 billion, a 25% increase over the first 6 months 3e of 1996. In contrast to previous years, the volume DM Demand for emerging market debt of syndicated loans to developing countries fell countries fell 23% .surged in first quarter below total bond issues during the first half of 1997. Source: Euromoney Bondnare and Tradingvolumesofemergingmarketdebtsoaredin TABLE2 Loan issues bytype of borrower the first quarter of 1997. Bradys (issued in exchange US$ millions 1996 -1996 1996 1997 1997 1994 l995 1996 Q2 Q3 Q4 QI Q2 for debt owed to commercial banks) still repre- Al developingcountries 72.780 102,91 95,385 18,870 18,750 36,242 26,411 24,890 sented the largest category of debt ($671 billion), Private 32, 10 51,075 6 850 13,010 10,987 25,682 18,845 12,992 although their share of total emerging market debt Sub-Saharan Africa 1,022 2.606 3.921 2,144 446 517 1,011 395 East Asia and the Pacific 20.685 28,447 31,823 7,060 7,445 8,359 9,202 5,228 South Asia 1,857 2,400 2,395 171 304 1,278 406 202 Europe and Central Asia 1,645 5.344 6,718 1,125 1,089 3.687 1,499 1,446 FIGURE 6 Sectoral composition of Latin America and Caribbean 6,434 11,621 16.515 2,255 1,669 11,654 4,521 4,741 developing country bond issues, Middle East and North Africa 468 657 477 255 35 187 2,206 980 1997Q2 Sovereign 10,604 7,284 4,347 678 915 1,631 743 874 Sub-Saharan Africa 28 41 1 471 0 375 56 14 0 Other Energyltelecom/ East Asia and the Pacific 4,074 1,727 790 542 100 50 500 291 10% utilities SouthAsia 283 361 701 0 182 143 30 0 6% Europe and Central Asia 2,585 1 ,666 1 ,009 136 108 704 0 496 Miningloil Latin America and Caribbean 585 2.914 627 0 0 277 199 0 3% Middle East and North Africa 3,048 205 750 0 150 400 0 87 Government Other public 30,066 44,552 29,188 5,182 6,848 8,928 6,823 11,025 53% __ Bankingl Sub-Saharan Africa 311 2.649 1.333 185 349 359 76 110 nance 28% East Asia and the Pacific 14,568 18,077 8,072 1.741 1,767 2,085 3,283 1,947 South Asia 2,411 3,339 4,093 1,082 720 1,323 859 1,037 Europe and Central Asia 6,692 6,759 7,533 994 2,374 1,320 1,244 6,149 Latin Americaand Caribbean 4,838 5,660 7,486 1,079 1,627 3,842 1,361 1,260 Middle Eata and North Africa ,246 8,067 671 100 I10 0 0 522 Note: "Other" includes utilites, agriculture, construction, transport, and i other services, Note: F rat quarter figures are as of March 25, 1997. Source: Euromoney Bondware and World Bank. Source: Euromoney Loanware and World Bank. August 1997 M International lending and capital markets FIGURE 8 Secondary market price index, January 1993-May 1997 FIGURE= Comparison of private sector margins over risk-free rate April 1990 =1I 00 Bosis points 240 1 . . 200 1997QI Indonesia Malaysia Philippines 100 ,___ :_______________________ U_ _=_ _s_ ~~~~~~~~~~~~~~~~~~~~Source: Euromoney Loanware. Source: Worlo Bank. fourths of the $2.4 billion raised by China in the Nosvrig ulc etrprsne second quarter. A subsidiary of the Guangdong rie shrl provincial government raised $85 million for 5 years, paying 50 basis points over LIBOR. A sub- Loans to the nonsovereign public sector jumped sidiary of a municipal authority secured $25 mil- from $6.8 billion in the first quarter to $11 billion lion for 2 years at a margin of 130 basis points over in the second, as a result of large transactions in LIBOR. Sino Mining Alumina, a state-owned met- the Czech Republic, the Russian Federation, and als company, raised $180 million. A novel feature Iran. In contrast, loans to the private sector fell by of the loan is the requirement that the borrower 31% to $13 billion, although the private sector purchase anominal hedge of $435 million onalu- continued to capture the majority of loan syndi- minum prices over the next 5 years. Many of the cations to developing countries. Sovereigns, Chinese deals were oversubscribed, and the size of largely East Asian and European governments, some loans increased. Syndicated loans borrowed only $0.8 billion in the second quarter. to East Asian PRIVATE SECTOR AND PUBLIC SECTOR BANKS borrowers fell Loans to East Asia decline TAP MARKET IN INDONESIA. The private sector in second quarter accounted for almost all of the $2.5 billion bor- from $13 billion rowed by Indonesia, with Bank Rakyat Indonesia in the first Syndicated-loans-to East Asian-borrowers-fell-from and PT Bank Bumi Daya the only public sector $13 billion in the first quarter to $7.5 billion in the borrowers. In one of the country's largest transac- quarter to $7.5 second quarter. The private sector continued to tions, PT Indah Kiat Pulp & Paper Corporation billion in the sec- dominate the region's borrowing, accounting for refinanced $400 million in debt. PT Asianagro ond quarter ~more than 70% of the regional total since the Lestari and PT Tunas Barn Lampung refinanced ond quarter ~beginning of 1996. Spreads facing private bor- their local currency debt with US dollar debt: rowers have declined in some countries (figure 9) . PRIVATE SECTOR DOMINATES BORROWING BY CHINA RAISES $2.4 BILLION. The Chinese MALAYSLA. About 10 Malaysian private sector bor- nonsovereign public sector, including provincial rowers came to the market in the second quarter. and local authorities, accounted for about three- To fund the purchase of real estate, a forestry and E Financial Flows and the Developing Countries International lending and capital markets packaging company borrowed $148 million for 3 agent for oil imports in India, borrowed $500 mil- years at a margin of 62 basis points over LIBOR. A lion for 1 year during the second quarter. The construction and heavy engineering company spread over LIBOR was tied to the country's borrowed $68 million in US dollars, deutsche sovereign credit rating. The corporation also marks, and Austrian schillings. tapped the market for $175 million to finance its general operations, paying from 19-25 basis PH1LIPPINES BORROWS FOR INFRASTRUCTURE. points over LIBOR. Indian Petrochemical Corpo- The Philippine govemmentborrowed 21 billion yen ration raised $198 million, to be used to redeem Companies ($181 million) to finance the construction and an outstanding convertible bond. ICCI, the invest- in Thailand repair of roads and bridges. The facility was guar- ment grade-rated development finance company, anteed byJapanese Export-Import Bank (JEXIM). secured $50 million for 6 years at a cost of 57 basis borrowed only Philipino Telephone Corporation financed tele- points over LIBOR. $9 1 0 million phone network expansion through a $110 million 8-year facility priced at 175 basis points over LIBOR. PAKISTAN REPORTS TRANSACTIONS. Pakistani in the second companies borrowed $96 million in the second quarter with THAI BORROWING DECLINES. Companies in quarter. The Industrial Credit and Investment most activity Thailand borrowed only $910 million in the sec- Corp. of Pakistan secured a $25 million 1-year ond quarterwith most activity coming from the pri- trade financing loan to fund the purchase of coming from vate sector. The only public sector transaction was machinery. Karachi Electric Supply Co. financed the private by Thai Airways International, the country's flag its working capital, and a petrochemicals com- carrier, which borrowed $160 million for 11 years pany borrowed $22 million to fund a guarantee sector to finance the delivery of aircraft. Loan volumes in facility for previously issued debt. Thailand have fallen significantly from their aver- age level of $8 billion a year since 1993 (figure 10). Investors regain confidence in South Africa India dominates borrowing by South Asia South Africa and Zambia were the only Sub- Saharan African countries to borrow on the syn- INDIA ACCOUNTS FOR 85% OF THE REGION'S dicated loan market in the second quarter. BORROWING. The Indian Oil Corporation, sole Spreads facing South African borrowers have declined since last year (figure 11). Standard FIGURE 10 Thailand loan volumes Bank of South Africa borrowed $275 million in a 1-year revolving credit, paying 20 basis points US$ billions over LIBOR. The transaction enabled the com- 9.6 pany to replace its previously contracted debt at LIBOR plus 35 basis points. The deal was report- 8.0 edly oversubscribed. A private corporation in South Africa issued $120 million in 3-year revolv- ing debt with a spread of 40 basis points over LIBOR. Strong syndicate response enabled the company to increase the size of the deal by 20%. Zambia Consolidated Copper Mines, a public 1.8 corporation, borrowed $50 million for 6 months at 175 basis points over LIBOR. The funds will a be used to purchase mining equipment. The 1995 1996 Mid 1997 African Export-Import Bank was a co-under- Source: Euromoney Loanware. writer. August 1997 * International lending and capital markets FIGURE!I Spreads on South African debt arranged a $2 billion revolving credit facility, pay- ing just 10 basis points over LIBOR, the lowest Basis points spread in the region (figure 12). Funds were 54 raised at a narrow spread despite the economic difficulties facing the government and the recent currency devaluation. 40 36 NEw BORROWER ENTERS MARKET IN ESTONIA. The Estonian Telephone Company raised DM 24 million ($14 million) for 5 years at a spread of 45 basis points over LIBOR. The spread will rise by 10 basis points and the syndicate members can exer- cise a put option if the borrower is unable to achieve an investment-grade rating after 3 years. 1996 1997Q1 l 997Q2 Source: Euromoney Loanware and World Bank. OTHER COUNTRIES IN REGION BORROW. Loans to Hungary totaled about $800 million, as spreads About a dozen Europe and Central ASsia raisedelndTwprvtRoaincprtos $8.1 biffion ~~~~~declined. Two private Romanian corporations . . ~8.1 billion Russian entities borrowed $86 million for 3 years. Slovakia's taipped the largest corporation borrowed $160 million in 5- RusSIA BORROWS $3.4 BaIION. About a dozen year funds at 35 basis points over LIBOR. Other mcarket in the Russian entities tapped the market in the second Slovak borrowers raised $40 million. A private second quarter quarter. Among those deals was the $2.5 billion pro- investment grade-rated bank from Slovenia bor- ject financing loan for Gazprom (discussed in the rowed $88 million at 22 basis points over LIBOR project financing section). The City of Moscow, the for 7 years. Private sector banks accounted for the first Russian municipality to tap the loan market, majority of the funds syndicated for Turkey. Bank arranged a 3-year $200 million term loan facility Ukraina arranged the first syndicated loan for a priced at 350 basis points over LIBOR with annual Ukrainian entity, borrowing $16 million for 6 put and call options. Oversubscription allowed the months at a 600 basis point spread over LIBOR. size of the loan to be raised from its initial level of $50 million. Private corporations in Russia bor- FWGURF 12 Selected margins over risk-free rowed $217 million in the second quarter. rate in Europe and Central Asia Basis points LOAN VOLUME IN CROATIA INCREASES. Indus- 600 trija Nafte, Croatia's national oil company, became the first corporate entity to enter the syn- 500 dicated loan market with a $150 million 5-year 997Q2 term loan priced at 87 basis points over LIBOR. 400 Strong investor demand allowed the size of the 300 loan to be increased by 50%. Croatia's largest bank, Zagrebacka Banka bd, borrowed DM 400 200 million ($232 million) at 50 basis points over LIBOR. Oversubscription allowed the borrower to 100 increase the size of the loan by DM 100 million. Czech Hungary Romania Russia Slovakia BANK FROM CZECH REPUBLIC BORROWS AT Republic NARROW SPREAD. The Czech National Bank Source: Euromoney Loanware and Word Bank. Financial Flows and the Developing Countries International lending and capital markets Private sector accounts for 80% rity loan. Oversubscription allowed the size of the of loans to Latin America 7-year loan, priced at 31 basis points over LIBOR, to be increased beyond its initial level of $50 mil- Strong growth in Latin American markets encour- lion. Another private company borrowed $210 aged an influx of syndicated loans to private bor- million, with the cost of funds linked to the com- rowers, accounting for 80% of loan flows during pany's debt-to-cashflow ratio. the first 6 months of 1997. Market participants note improved access for corporate borrowers, PANAMANIAN BANK TAPS MARKET. Panama's Mexican with increased maturities, lower spreads (figure Banco del Istmo became the first private bank in entities 13), and less reliance on guarantees. the country to access the commercial paper mar- ket, with a $70 million 1-year deal. The size of the borrowed MEXICO IS LARGEST BORROWER IN REGION. loan was increased $20 million over the initial $3 billion in the Mexican entities borrowed $3 billion in the sec- amount. ond quarter. TELMEX borrowed $1 billion for second quarter one year, paying 60 basis points over LIBOR. First Egyptian private sector bank FEMSA, a private corporation, borrowed $350 borrows on international loan markets million in 3-year funds to refinance its maturing bond issue. CEMEX borrowed $600 million for 3 Commercial International Bank became the first years in a revolving credit facility linked to the private sector bank in Egypt to secure capital in the company's cashflow. international markets. Capitalizing on the strength of the investor reaction, the borrower BRAZIL AND CHILE BORROW MEDIUM-TERM doubled the size of its 3-year deal to $200 million. FuNDs. BNDES, Brazil's national development Public sector Iranian banks borrowed $500 million bank, borrowed $275 million for 8 years at an ini- for pre-export financing, with maturities ranging tial price of 200 basis points over LIBOR. The from 3 to 10 years. Morocco's national air carrier future cost of funds is linked to changes in Brazil's secured $22 million funding in a deal backed by credit rating. Syndicate members have a 3-year put the US Ex-Im Bank to finance the purchase of air- option. Empresa Nacional de Minera arranged craft. Through a syndicate arranged byJEXIM and Chile's first syndicated medium-term bullet matu- otherJapanese investment banks, the government of Tunisia secured 10 billion yen ($87 million) in FIGURE 13 Spreads on private sector debt trade financing with a maturity of 13 years. in Colombia and Mexico Bosis points Size, maturity of syndicated loans 300 rise in 1997 Colombia The average size of syndicated loans to developing 250 countries rose by about 15% during the first half 200 of 1997. The supply of funds often exceeded the initial offer, and in many cases the size of the loan 150 was then increased, although some borrowers reduced margins instead. The average loan matu- 100 rity was just over 4 years in the second quarter, 50 l ' about the same as the average for 1996 (figure 14). The average loan maturity in Poland, Slove- 0 nia, Saudi Arabia, and Tunisia was 7-8 years; 1996 1 997Q2 maturities in other developing countries averaged Source: Euromoney Loanware and World Bank. 4-5 years. August 1997 * International lending and capital markets Volume of project finance remains high for Russia's Gazprom, the average size of project finance transactions rose by almost 50% over 1996. Estimates of project finance volumes for the first quarter were revised upward to $8.5 billion (from CHINA, INDONESIA, AND THE PHILIPPINES $4.2 billion as reported in the last issue of Finan- ACCOUNT FOR BULK OF EAST ASIAN LOANS. China cialElows). Volume for the first 6 months of 1997 raised $240 million in various syndications. China rose more than 60% over the same period last Construction Bank borrowed $90 million for 25 Russia 's year. Data for the second quarter are likely to be years for bridge construction. A private company Gazprom, the revised upward, suggesting that project finance borrowed $120 million for 7 years for construction increased markedly in the first half of 1997. of a textile plant. Participating banks had an annual public gas giant, put option and the choice of lending in US dollars debuted in the SHARE OF INFRASTRUCTURE SECTOR DECLINES. at 42 basis points over LIBOR or Hong Kong dot- Infrastructure accounted for 27% of total project lars at 47 basis points over LIBOR. Guangzhou international finance loans in the first half of 1997, down from International Trust & Investment Corporation, set markets with more than 40% over the past 3 years. The decline up by Guangzhou municipality, borrowed $20 mil- a $2.5 billion reflects the decrease in lending for power pro- lion for 7 years. Indonesia accounted for 36% of the jects, which accounted for only $1.2 billion in the region's total. PT Excelcomindo, set up to manage loan first half of 1997, down from $2.0 billion in the a fiber optical cable and microwave project expan- first half of 1996. sion, borrowed $400 million for 7 years. The pro- ject is sponsored by US, Japanese, and Indonesian MATURITIES LENGTHEN AND SIZE OF LOANS companies and an Asian direct investment fund. INCREASE. The average maturity of project finance The transaction was heavily secured through loans fell to 8 years, 7 months in the second quar- charge over assets and financial covenants. Perhaps ter, about 1 year longer than maturities in the first the most important deal in the region was the quarter and 2 years longer than maturities in 1996. financing of the Quezon Power project in the Even excluding the $2.5 billion loan syndication Philippines. The $860 million project is the coun- try's first large-scale independent power project FIGURE 14 Average maturity on loan syndications for developing built, owned, and operated by private firms and not countries, 1996 and 1997 guaranteed by the government. About $520 million Years was raised in the syndications market in three 6 in1996 tranches: a $405 million 5-year tranche at 137 basis 1997Q I points over LIBOR, guaranteed by US Ex-Im Bank, 5 EIf 1997Q2 a $100 million 15-year tranche backed by OPIC, and a $12.5 million facility for the purchase of coal countnes Afnca apnadCltFhCeand powver. The power plant has an agreement in place to sell power to Manila Electric Co. 3 INDIA CONCLUDES ONLY DEAL IN SouTH AsiA. 2 ~~~~~~~~~~~~~~~~~~India's state-owned Konkan Railway Corporation borrowed $115 million for 8 years at a cost of 72 basis points over LIBOR. The deal was backed by I a letter of comfort from the Ministry of Railways. 0Ail developring Sub-Sahoran East Asia South Europe Latin Middle GAzpRom ARRANGEs jumBRo LoAN IN RUSSIA. countries Africa and the Asia and Central America East and Russia's Gazprom, the public gas giant, debuted in Pacific Asia ond the North Caribbean Africa the intemnational markets with a $2.5 billion loan for Source: Eurornoney Loanware ano World Bank. 8 years at 200 basis points over LIBOR. The loan did 11W1 Financial Flows andtheDeveloping Countries * International lending and capital markets TABLE 3 Project finance by region and sector investment-grade rating, placed Tunisia's credit TABLE 4 US$ millions 1997 1997 standing on a par with that of the Sultanate of Sovereign foreign 1996 Ql Q2 Oman and Egypt and a notch higher than Jor- Lorgrsean ratngcy dseo Region dan's. Analysts attributed the rating to GDP June 24, 1997 All developing countries 20,484 8,474 4,252 Sub-Saharan Africa 200 0 0 growth of 6 percent, strong public finances (the Moody's 5&P East Asia andSthe Pacific 13,982 3,077 1,193 general government deficit is expected to reach Inveltment grade South Asia 2,173 148 115ChnAB BB Europe and Central Asia 1,353 103 2,639 3% of GDP this year), and an inflation rate of 3.9% Co ombia A3 BBB2 Latin America and Caribbean 2,026 2,531 0 and noted that labor market reforms coupled with A+*2 Middle East and North Africa 750 2,615 305 Croatia Baa3 BBB-/ trade agreements with the EU should support fur- A-* PSoectr 5,074 540 632 ther diversification of the economy and of exports. yp A2 AA-/ Telecommunications 2,150 557 400 The rating is constrained by Tunisia's high public Czech Republic Baa I Al Transportation 427 103 115 Greece BaaI BBB-' Other infrastructure 1,509 827 0 debt burden, estimated at 74% of GDP this year, Hungary Baa3 BBB-/ Noninfrastructure 11,325 6.448 3,105 and the slow progress of its privatization program. India Baa3 BB+/ Note: First quarter figures are as of March 25, 1997. BBB+ '2 Source: Euromoney Loanware and World Bank. Indonesia Baa3 BBB/ MOODY'S GIVES BA3 RATING TO VIETNAM'S A+` Malaysia AlI A+/ not receive government or export credit agency DEBT. Moody's praised the reforms initiated in AA+/ support. Until now, blue-chip companies in Russia Vietnam in the 1990s, which have liberalized Malta A2 A+/ could borrow only short-term amounts of about $75 investment and trade regimes, freed most prices, Panama Baal BB+` Poland Baa3 BBB-/ million, paying about 400 basis points over LIBOR. and reduced subsidies to the public enterprise a -/ Gazprom's success in borrowing on more favorable sector. Since 1992 Vietnam's GDP growth has Slovak Republic Baa3 BBB-/AN" Slovenia A3 NAIA/1 terms is attributed to its large foreign currency earn- averaged almost 9% a year, and the country is in South Africa Baa3 BB-+/ BBB+12 ings and successful business in Western Europe. the process of restructuring its external debt bur- Thailand A2 6/vAA den. But ratings are constrained by the low domes- Tunisia Baa3 BBB-/ POLAND, TURKEY BORROW FOR INFRASTRUC- tic savings rate, a weak judicial system, massive Uruguay Baa3 BB+/ BBB" TURE. A private electricity utility in Poland bor- infrastructure needs, and a fragile financial sector B it g rowed $114 million for the modernization and with undeveloped capital markets. Argentina B I BB/ installation of equipment to reduce pollution. BBB-a Barbados BalI n.a. The country's environment protection fund took S&P AWARDS INVESTMENT-GRADE RATING TO Brazil B I BB-/ BB'] an equity stake in the project. The government of IrHUANIA. Lithuania was awarded BBB (an invest- Egypt Ba2 BBB-/ Turkey borrowed $25 million for 3 years to help Jordan Ba3 BB-/ finance the construction of highways. FiGURE 5 Currency composition of BBB-" loan issues, 1 997Q I and 1 997Q2 Kazakhstan Ba3 BB-/ SAUDI FIRM CONCLUDES ONLY DEAL IN MIDDLE 1997QI Lavia A-I1 EAST. Saudi Arabia's Chevron Petrochemical Com- % Lithuania Ba2 BBB- nl% g } OMoldova Ba2 n.a. pany raised $305 million in an 8-year deal, priced at Mexico Ba2 BB/ BBB+*" 112 basis points over LIBOR The term loan will Us Others Pakistan 82 B+r finance the construction of new petroleun facilities. _ 19% Paraguay n.a. BB-/ Philippines Bal BB+/ Market creditworthiness Romania Ba3 BB-/ 1997Q2 BBB-2* Russia Ba2 BB- Tunisia, Vietnam, Lithuania, Uruguay DM2% Tnnidad Bal BB+/ S Yer I% and Tobago BBB+*2 assigned ratings Others 2% Turkey B I B US an Venezuela Ba2 B8 Vietnam Ba3 n.a, S&P AWARDS INVESTMENT-GRADE RATING TO * The first rating applies to foreign TUNISIA. Standard & Poor's assigned a BBB- rating currency debt and toe second to to Tunisia's long-term debt denominated in for- n.a. Notaapplic ble. i. Stable outlook. eign currencies (table 4). The rating, the lowest Source: Euromoney Loanware and World Bank. 3 Negative outlook. August 1997 X International lending and capital markets ment grade rating) by Standard & Poor's, whose labor costs, and increased growth in manufac- analysts noted the government's conservative fiscal tured exports by 16% for the past 4 years. The con- and monetary policies and its commitment to solidated public sector deficit is projected to be restructuring and privatizing large state enterprises. less than 2% of GDP this year (down from about 3% in 1996). MOODY'S AWARDS INVESTMENT-GRADE RATING TO URUGUAY. Uruguay was upgraded from Bal to BRAZIL IS UPGRADED FROM B+ TO BB-. S&P Baa3. Analysts viewed the ongoing economic and upgraded Brazil's credit rating, citing strengthen- political reforms as improving public finances and ing political support for the fiscal reform, success reducing the public-sector debt burden and noted against inflation, and a shift in capital inflows that inflation is at its lowest level in 20 years. The toward direct investment (which financed 37% of rating could be threatened in the event of a deval- current account deficit last year) and long-term uation, which could significantly increase debt debt, and away from interest rate-driven short-term service costs, since the government's external inflows. The high and rising external debt burden debt is denominated in dollars. (154% of exports in 1997) constrains the rating. Argentina and Brazil upgraded, THAILAND'S CREDIT RATING IS DOWNGRADED Thailand downgraded FROM A3 TO A2. Moody's cited the recent escala- tion in Thailand's external debt burden to about S&P RAISES ARGENTINA'S RATING FROM BB- 117% of exports (well above the debt-export TO BB. Argentina's 6-year-old fiscal and financial ratios of other A-rated sovereigns), the large por- reform program seems to have gained credibility, tion of foreign currency debt with maturities of according to S&P analysts. The reforms have less than 2 years, crises in the domestic financial achieved price stability, strengthened the finan- and property sectors, and structural problems cial system, brought about a 17% decline in unit affecting the country's traditional exports. Equit portoi n orindrcnvest ment .-isf -U Emerging stock markets Indonesia posted declines, writh Thailand falling 7Cr,~'~ s ... -