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Corporate Financing Trends and Balance Sheet Risks in Latin America
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Corporate Financing Trends and Balance Sheet Risks in Latin America

Taking Stock of “The Bon(d)anza”

Fabiano Rodrigues Bastos, Herman Kamil and Bennett Sutton
IMF, 2015
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Editorial Rating

7

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  • Innovative

Recommendation

Companies in emerging economies are increasingly tapping global bond markets, and investors around the world have been enthusiastic buyers. While Latin American corporations have benefitted from this trend – especially because of their region’s low internal savings and investment rates – concerns over excessive leverage and currency risk are on the rise. Those old enough to remember the 1980s Latin American debt crisis will be particularly interested in this broad overview of more recent borrowing patterns from International Monetary Fund economists Fabiano Rodrigues Bastos, Herman Kamil and Bennett Sutton. getAbstract recommends their work to global investors, analysts and financial advisers.

Take-Aways

  • Latin American firms are increasingly raising debt in global markets. But as interest rates increase, these borrowers may face higher debt-service costs, greater foreign exchange risk and potentially slower economic growth.
  • An analysis of nonfinancial corporations in Brazil, Chile, Colombia, Mexico and Peru reveals that they have reduced their bank loans in favor of bonds.
  • This shift has simultaneously increased and decreased risk: Firms have been able to stretch out their debt maturities at relatively low cost, but currency risk grows with dollar-denominated or other foreign currency bonds.

About the Authors

Fabiano Rodrigues Bastos, Herman Kamil and Bennett Sutton are economists at the International Monetary Fund.

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