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Corporate Debt in Emerging Economies
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Corporate Debt in Emerging Economies

A Threat to Financial Stability?

Viral Acharya, Stephen G. Cecchetti, José De Gregorio, Şebnem Kalemli-Özcan, Philip R. Lane and Ugo Panizza
Brookings Institution, 2015
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Editorial Rating

7

Qualities

  • Analytical
  • Overview

Recommendation

After sailing through the 2008 global financial crisis, emerging market economies (EMEs) have hit some headwinds in the form of higher debt, sluggish global economies and tighter credit conditions. The Federal Reserve’s long-awaited interest rate increase could unleash a financial storm in these countries, and one channel for that instability is EME corporate debt. Economists Viral Acharya, Stephen G. Cecchetti, José De Gregorio, Şebnem Kalemli-Özcan, Philip R. Lane and Ugo Panizza investigate EMEs’ vulnerability to another crisis. getAbstract suggests this scholarly analysis, written for the economic community, to finance professionals and investors.

Take-Aways

  • The private sectors in emerging market economies (EMEs) have raised their indebtedness since 2010, and about 80% of this debt is in foreign currencies.
  • Indebted firms run four major risks: “maturity mismatches,” “currency risk,” “rollover risk” and “speculative risk.”
  • These threats could damage not only the firms themselves but also the greater economy, as problems can spread via the financial sector.

About the Authors

Viral Acharya et al. are members of the Committee on International Economic Policy and Reform, a nonpartisan group of economists who examine monetary and financial crises, offer systematic analysis and advance reform ideas.

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