Developing Nation Debt Costs Soar as Belarus Joins IMF Requests
By Denis Maternovsky and Laura Cochrane
Oct. 23 (Bloomberg) -- Developing nations' borrowing costs jumped to the highest in six years as Belarus joined governments seeking a bailout from the International Monetary Fund to help weather the credit crisis and slump in commodities.
The
extra yield investors demand to own emerging-market government bonds instead of U.S. Treasuries rose 24 basis points to 8.26 percentage points, the most since November 2002, according to JPMorgan Chase & Co.'s EMBI+ index. The annual cost to protect Russia's bonds from default soared to 10.5 percent of debt insured, from 9.5 percent yesterday, according to credit- default swap prices from CMA Datavision.
``There is now no safe haven globally other than a deeply indebted U.S. government,'' said
Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London. ``The events of the last few days are categorical evidence of the globalization of the credit crunch and its subsequent problems.''
Ex-Soviet Belarus followed Iceland, Pakistan, Hungary and Ukraine in requesting emergency loans as the global financial crisis limits its ability to borrow, the IMF said yesterday. Argentina's lawmakers are attempting to stop President
Cristina Fernandez de Kirchner seizing pension funds from money managers, as the country risks defaulting for the second time this decade.
Emerging-market stocks, bonds and currencies are getting battered as the financial crisis that began with U.S. mortgages last year pushes the global economy toward a recession, crimping the demand for the commodities that sustain most developing nations' finances. The IMF forecast global growth will slow to 3 percent in 2009, from 3.9 percent this year, signaling a global recession.
Stocks in emerging markets have tumbled 59 percent this year, compared with 43 percent for developed countries, according to MSCI Indexes.
Government Bailouts
Belarus applied for a $2 billion loan and may also seek funds from central banks and commercial banks in other countries, news agency Interfax reported yesterday, citing the Belarusian central bank.
Speculation that Argentina's Fernandez intends to finance the government with privately managed retirement funds has roiled Latin America's markets. Argentine stocks had their biggest two-day drop since 1990 and dollar bond yields topped 30 percent on concern the takeover shows the government is struggling to avert a default. The last time the government seized savings was in 2001, before it reneged on $95 billion of debt and triggered a global selloff.
IMF bailout applicants Hungary and Ukraine led declines in emerging-market stocks to the lowest since 2005. The Budapest Stock Exchange index dropped for a sixth day, declining 3.43 percent to the lowest in five years. Ukraine's PFTS index fell 2.8 percent.
Vulnerable Nations
The MSCI Emerging Markets Index of shares fell 3.7 percent to 513.28 at 10.56 a.m. in London, extending the worst monthly decline in at least two decades.
``The threat from the economic slowdown will be greatest in small open economies, those with sizeable external imbalances, and countries with large banking sectors,'' said
Ivailo Vesselinov, a senior economist at Dresdner Kleinwort in London. South Korea and Europe's Baltic and Balkan nations are ``particularly vulnerable,'' he said.
South Korea's won fell 3.4 percent to the lowest since 1998 on concern demand for the nation's exports is dwindling and the Kospi stock index slumped 7.5 percent. Romania's leu decreased 1.8 percent.
Default Swaps Surge
The cost to protect debt payments by 14 emerging-market governments from Argentina to Ukraine surged overnight by 3.2 percentage points to 9.9 percent, according to Deutsche Bank prices on the CDX Emerging Markets credit-default swap index.
``It isn't necessary for a major economy like Russia or Brazil to fall for there to be severe pressure across the emerging-market universe,'' said Vesselinov.
Credit-default swaps protect bondholders against default by paying the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. An increase indicates a deterioration in the perception of credit quality.
The yield on Russia's 30-year, 7.5 percent dollar notes increased 34 basis points to 11.32 percent, an all-time high.
Russia's international reserves, the world's third largest, fell $14.9 billion last week after the central bank sold currency to prop up the ruble.
To contact the reporter on this story:
Denis Maternovsky in Moscow at
[email protected].